​GWG Holdings Offers Baby Boomers an Interesting Proposition

Henry Truc  |

“I just really think this is one of these businesses that we’re going to look back on in a few years and you’re going to wish you owned 10 times as much of.”

That was the introduction ROTH analyst Bill Gibson gave for GWG Holdings’ (GWGH) presentation at the recent 28th annual ROTH Conference. With an intro like that, whose ears wouldn’t perk up? So what exactly does GWG Holdings do to warrant such a bullish description?

The company is a leading is an industry leader in purchasing life insurance policies in the secondary market. Basically, GWG Holdings provides an alternative for senior citizens who can no longer afford to pay their universal life insurance premiums and are at risk of losing their coverage. The company offers a lump sum to take over the policy and payments, and collects the benefits when they’re eventually paid out.

For the uninitiated, the business model may seem a bit morbid at first glance, but GWG makes a strong case that it’s offering cash-strapped retirees with a win-win financial alternative. The company cites a finding that nearly 88% of universal life insurance policies issued in the US never result in payment of a claim, according to Milliman USA. The company also estimates that the market potential in the secondary life insurance market is $200 billion annually, with only 1% of the market transacted so far.

For seniors, instead of having to surrender their policies or see the coverage lapse because they can’t afford the premiums, they can elect to essentially sell the policy to GWG. For example, imagine an 80-year-old person with a life expectancy of five years owns a $1 million policy. If they can no longer afford to make the premium payments, they could choose to surrender the value of the policy for $14,000 to the insurance, or allow it to lapse and lose it all. However, with the advent of the secondary market, the policyholder now has other options. In this scenario, they could sell the entire policy for a market value of, say, $115,000 to GWG, or decide to split the policy with GWG, which would allow them to keep $300,000 of the benefits and no have to make any future payments. Financial advisors that help to facilitate these transactions can collect a 1% fee on the face value of the policy.

“We have delivered over $280 million more than the cash-surrender value offered by the carriers in the policies that we have bought to date. That’s consumer value,” said Jon Sabes, CEO of GWG Holdings. “We have a happy customer and we have a happy financial advisor. Advice on life insurance and retirement; these are value-added services that advisors can provide their consumers.”

Launched in 2006, GWG has accumulated a portfolio of $945 million in life insurance benefits with $31 million of benefits collected, which represents 117% of premiums paid. It estimates that its blended portfolio has an 18.5% internal rate of return. It also leverages a network of over 3,000 independent financial advisors to source policies and provide capital.

With roughly 10,000 baby boomers entering into retirement age every day over the next two decades, the majority of which facing strict financial constraints and high insurance costs, GWG’s model seems like a unique approach toward playing the nation’s aging population trend.

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