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Think Like an Endowment

While many investors (and their advisors) still think about investment portfolios in terms of cash, stocks, and bonds, a growing number of investors and advisors have expanded their investment universe to include non-traditional investments, often called “alternatives”. The primary benefit of using non-traditional investments in a portfolio is to augment the risk-adjusted returns provided by a common stock-bond portfolio. This strategy is commonly referred to as taking an “endowment approach” because the endowments of large universities were early adopters of non-traditional investments.

As an example, as of June 30, 2015, Harvard University’s Endowment was valued at $37.6 billion, making it the single largest university endowment. Below outlines Harvard’s asset allocation shifts over the years[1]:

As can be seen in the table above, the percentage allocation to non-traditional investments increased from 25% in 1995 to almost 57% by 2014.

Harvard University Endowment’s annualized performance over the last 10- and 20-year periods ending June 30, 2015 was 7.6% and 11.8%, respectively, as compared to a standard 60% stock / 40% bond portfolio (using the S&P 500 Index and the Barclays Aggregate Bond Index), which provided 6.8% and 7.9% average annualized returns over those same time periods[2].

[1] Source: Harvard Management Company Annual Report 2015.

[2] Source: Harvard 2014 Annual Report.

What is a Life Settlement? 

A life settlement is the sale of a life insurance policy to a third party for a value in excess of the policy’s cash surrender value, but less than its face value, or death benefit.  A policy owner receives a cash payment, while the purchaser of the policy assumes all future premium payments and receives the death benefit upon the death of the insured. 

Any question as to whether a policyholder had the right to sell his/her policy was resolved in 1911, when the U.S. Supreme Court issued a landmark decision in the case of Grisby vs. Russell, which recognized the rights of the life insurance policyowners to transfer ownership of their life insurance policies to a third party, even if that third party happened to be unrelated to the policy owner or insured and who did not hold an insurable interest in the policy owner or insured.

Who might consider selling their life insurance?

It should be noted that a life settlement is not an option for every policyowner. In general, candidates for life settlements are typically age 65+ or older and own a life insurance policy with a face amount in excess of $100,000. A settlement is only possible when the policy’s market value exceeds the cash surrender value. Key factors in determining the market value of a policy are the death benefit, the cost of future premiums, and the life expectancy of the insured.

Life expectancy is the key component in determining the market value of a life settlement transaction. The lower the premiums and the shorter the life expectancy, the higher the selling price. This is because the greater the amount of premiums that need to be paid and the longer the investor must wait for the death benefit, the lower the policy value.


Key characteristics of the settlements market generally include:

  • Insureds age 65 or older

  • Insureds with life expectancies of less than 12 years

  • Insured may have one or more health impairments

  • Universal life, term life and second-to-die policies are most common settled

Atomi can help monetize old life insurance policies


As an appointed life agent, representatives of Atomi Financial Group are able to offer clients unique access to the secondary market for their life insurance. Atomi can assist policyholders in potentially maximizing the cash value of their life insurance, as compared to surrendering the policy.

But, more than just provide access to the life insurance secondary market, as financial planners, Atomi Financial Group can help clients determine whether sell all of their policy or retain some death benefit for heirs.

Process for Selling Life Insurance

There are eight key steps associated with the life settlement process. These include the following:

  1. Need Realized. Determine whether there is a need to sell one's life insurance policy.

  2. Application. The policyowner completes a settlement application and provides necessary documentation.

  3. Documentation. Atomi's Settlement Provider acquires supporting documentation that verifies insurance and medical status.

  4. Review. Atomi's Settlement Provider’s insurance and medical experts review the file, determining its ultimate viability, including a review for potential fraud. The Settlement Provider determines suitability for sale, and matches the policy for appropriate funding. At this point, the settlement company can also determine that the settlement does not qualify, which ends the process.

  5. Offer. Assuming the policy meets the Settlement Provider's criteria, an offer to purchase the policy is then made; its price is determined based on multiple factors, including the insured’s current age, state of health, and the overall economic environment. If the offer is declined, the policyholder can seek other offers with other settlement providers.

  6. Closing Package. If the offer is accepted, a closing package is delivered for review and signatures.

  7. Notification. The signed documents are returned and the insurance carrier is notified.

  8. Funds Transfer. Upon written verification of change of ownership, settlement funds are transferred to the selling policy owner from the Trustee’s Escrow Account.

When the transaction is complete, the buyer (aka, the Settlement Provider) becomes the new owner of the life insurance policy, pays future premiums and collects the death benefit when the insured dies. The proceeds of the sale can be used in any manner the seller sees fit.

Representatives of Atomi Financial Group are appointed life agents in all states that regulate the secondary market for life insurance except for AK, LA, ND, NV, and VT. Atomi may only assist residents in states in which it is authorized to facilitate the purchase of life insurance policies.

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