A life expectancy provider is an actuary which estimates risk on behalf of life insurance or life settlement service providers.
By determining factors which can influence the lifespans of policyholders – including lifestyle, location, age and preexisting health conditions – life expectancy providers assess the level of risk posed by policyholders or prospective policyholders to both insurance companies (the risk of early death) and to life settlement investors (the risk of longevity).
For life insurance companies, the longer a whole life insurance policy holder lives, the larger a portion of the policyholder’s benefit will be covered by their own equity in the policy, and therefore the less risk they pose to the insurance company.
For life settlement investors, on the other hand, the longer a whole life insurance policy holder lives, the longer the investor must pay their life insurance premiums. The more premiums must be paid before the death benefit is collected, the lower the return on the investment will be. If the insured individual lives until the policy matures (typically when they turn 100 years old), the investor will likely make a loss because they typically would have paid a life settlement premium to the policyholder on top of the policy’s cash value.
Life expectancy providers aim to determine how long life insurance policyholders are likely to live in order to determine whether investors could profit by buying their unwanted life insurance policies. Policies which insure individuals with low life expectancy are attractive life settlement investments. Policies which insure individuals with high life expectancies pose a high level of risk for life settlement investors.
More on this topic:
Life settlement investment guide
