Jay Jackson is hoping that one effect of making Abacus Settlements a public company will be more retail financial advisor awareness of the life settlement market.
Abacus is trying to go public through a merger with East Resource Acquisition Company, a special purpose acquisition company, or SPAC, with a listing on the Nasdaq Capital Market.
A majority of RIAs may know that clients can borrow against their cash-value life insurance policies, but only about one-sixth seem to have a good understanding of the resale market for life insurance policies, Jackson said in a recent interview.
"You should absolutely know the value of this asset," Jackson said.
Failing to include life insurance policy resale value in asset totals may lower an advisor's assets under management by 6% to 8%, Jackson estimated.
What It Means
The Federal Reserve's financial accounts tables for the third quarter of 2022 show that U.S. households and nonprofit organizations have about 5% of their $108 trillion in financial assets in checking accounts.
That suggests that, for many retail advisors, the potential value of clients' life settlement-related assets could be roughly comparable to the value of the cash in their checking accounts.
Life Settlements
Term life policies sold in the United States do not have a cash value for the policyholder. Permanent life policies, such as universal life policies, variable life policies and whole life policies, do have a cash value.
Policy owners can use special provisions to convert many term life policies into permanent life policies.
The life settlement market gives clients who have life insurance policies with a cash value and a relatively low estimated life expectancy a chance to sell the policies to investors.
U.S. life settlement companies bought about $4 billion of the $233 billion in life insurance coverage that lapsed in 2021, according to a proxy statement that Eres filed with the U.S. Securities and Exchange Commission.
Abacus Settlements
Abacus was founded in 2004. It now has relationships with about 30,000 financial professionals, and it also seeks out suitable policies by advertising directly to consumers and working with life settlement brokers, according to the SEC filing.
The Orlando, Florida-based company bought or helped with the purchase of 371 life insurance policies during the first three quarters of 2022, up from 309 in the first three quarters of 2021.
The company provides detailed information in the filing about some policies held in an investment fund. For the 265 life settlement deals originated for the fund in the first three quarters of 2022, the average age of the policyholders was 74.
The average policy in the fund offered $1.4 million in death benefits, and the average purchase price was $253,000, or about eight times the policies' cash value.
