different types of policies that are subject to this secondary market in life insurance. Universal Life policies and certain term policies are most desirable to investors in the secondary market. Why is this? Let’s take a look first at Universal Life (UL) policies. UL policies were developed from the marketing perspective of providing policy holders with greater flexibility in the payment of premiums as compared to traditional whole life policies. Whereas whole life policies, likely the most popular form of permanent policy prior to the advent of UL policies, generally require by their terms periodic premium payments of equal amounts – the level premium – UL policies only suggest a target premium that ought to be paid as per a plan that is developed between the carrier, the agent and the policy holder. However, UL policies will not lapse despite the fact that such target premium has not been paid, so long as the account value within the policy in combination with any additional premiums is sufficient to cover the cost of insurance of the policy for that year, in addition to any other expenses, costs or fees, such as sales expenses, that the carrier is allowed to charge. Investors in the secondary life settlement market will always prefer the flexibility offered by the UL policy in lieu of the rigidity required by a whole life policy, for example. The CPE course for accountants clarifies how investors in the senior settlement market prefer to make minimum and frequent periodic premium payments in order to maximize the utilization of funds and cash flow of their fund or portfolio. In other words, investors or funders in this life settlement space would prefer to use any excess funds for the purchase of additional assets or settle additional policies and not overfund a policy putting the excess cash into the hands of the carrier. Whole life policies do not offer this flexibility to such investors in the life settlement market.
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The CPE course also covers the following concept. Because of forced “overfunding” of policies – that is accumulation occurring in the cash account – by whole life policies, it is much more likely to see higher cash surrender values in whole life policies than in UL policies. Because a life settlement, or even viatical settlement, occurs only when an investor is willing to pay an amount higher than the cash surrender value, it is naturally more difficult to achieve such when the cash