The Science of Living Long

Which of these three statements regarding longevity is true?

Cheerful people live longer
Sociable people live longer
Scientific types live longer

The answer, surprisingly enough, is the third category. Contrary to popular belief, longevity statistics show that happy, easy-going people are not necessarily the category with the longest life expectation because of the phenomenon of “Illusory optimism” which means that they are less likely to be attentive to health risks and follow their doctor’s advice, according to Howard Friedman of the longevity project at UC Riverside. Similarly, sociable people have a penchant (more so than their staid counterparts), for smoking, drinking and partying. Interestingly scientists have a longer life projection than, say, business people. Overall they found that meticulous attention to organization was the best childhood predictor of longevity, much more so than eating broccoli, jogging and other popular health correlates.

This sort of statistical information is of great interest to folks in the Life insurance settlement space. Two thirds of consumers who have bought life insurance policies will abandon them because they no longer need the policy, or they are not able to keep paying the premiums. Enter life settlement companies, which offer to buy Life insurance policies anywhere from 5% to 60% of the face value. This is beneficial for the consumer who gets an immediate payment – including for the terminally ill who might prefer to use the cash for their treatment. The buyer pays the purchase price for the policy (normally negotiated through a broker) and assumes the payment of any premiums due, and ultimately collects on the policy face amount when the insured passes away. There are a large number of hedge funds and other investment vehicles which invest in purchasing portfolios of life policies, and use statistical information on longevity for classes of insureds, to smooth out the investment returns and risks over time.

In our Estate planning practice, we frequently advise clients that abandoning an existing life insurance policy should be the very last resort. For policies with cash value, their best alternative might be to do a section 1035 tax free exchange for a different life policy or annuity that better suits the needs. Another alternative might be to change the benefits of their existing policy to make premium payments more affordable. And selling a policy to a life settlement fund is an alternative that most people are not aware of.

The process off STOLI, stranger owned life insurance, is effectively illegal in most states (cases where a person would buy insurance on the life of an unrelated person for the express purpose of collecting on it at a later time). However, with the advent of life settlement, selling life insurance policies and annuities bought legitimately for one’s protection or for estate planning reasons, is a viable option for many.