TIPs is an acronym for Transferable Insurance Policies. When we speak of TIPs, we are specifically referring to life insurance policies.
A life insurance policy is a financial asset, and like any other financial asset, has transferable value. So, simply stated, a transferable insurance policy is the sale of an existing life insurance policy by a terminally ill or elderly person to another party.
The price of the policy is negotiated and sold by the owner at a discount to the face amount. The purchaser then collects the full amount of the policy when the insured person is deceased.
Since 1911 policies have been legally viewed as financial assets which may be sold to a third party, just as any other tangible investment can be sold at the owner's discretion. When a policy is sold to a third party, it is then called a "Life Settlement".
The motivations on the seller's part to sell the ownership of their policy to an investor can be one of many (see page 24 of the Wharton Report). There are hundreds of independent financial planners who present us with their client's insurance policies. Prior to the recent advent of companies like Bacon Financial, the options available to these policy owners were slim and costly.
Research tells us that 89.5% of all Universal Life policies lapse. With Life Settlements as an option, the insured can now realize a generous value for their asset and benefits for the policy seller.
Benefits to the policy seller? Since the inception of providing these investment vehicles to the small investor, policy holders have been provided with a cash exchange several times the value that would have been available to them from the underlying insurance company.
Benefits the investor? As of December 31, 2005 the actual average annualized ROI on payouts was 16.32%*. This has included a total of 5,824 policies purchased with a total face amount of $557,328,063.
* 2,061 matured policies from 10-14-91 to December 31, 2005. (Click Here To Return To The Previous Page)