Life Insurance Financing
Sources...
Life insurance
companies have long
been active
investors in real
estate, as
developers, owners
and long-term
lenders.
Their
source of money is
the premiums paid by
policyholders. These
premiums are
invested and
ultimately returned
to the
policyholders.
Because premiums are
collected in regular
amounts on regular
dates and because
policy payoffs can
be calculated from
actuarial tables,
life insurers are in
ideal positions to
commit money to
long-term
investments.
Life insurance
companies are state
chartered and state
regulated.
Requirements
regarding
investments vary
from state to state,
but generally
speaking, states
allow insurers to
place their funds
wherever sound
investments can be
found that will
protect policyholder
money. Within these
guidelines, life
insurers channel
their funds
primarily into
government and
corporate bonds and
real estate. The
dollars allocated to
real estate are used
for purchases of
land and buildings,
which are leased to
users, and to real
estate loans on
commercial,
industrial, and
residential
property. Generally,
life insurers
specialize in
large-scale projects
and mortgage
packages such as
shopping centers,
office and apartment
buildings, and
million dollar
blocks of home
mortgage
loans.
Participation
Repayment terms
on loans for
shopping centers,
office buildings,
and apartment
complexes sometimes
call for interest
and a percentage of
any profits from
rentals over a
certain level. This
participation
feature, or
"piece of the
action," is
intended to provide
the insurance
company with more
inflation protection
than a fixed rate of
interest.
Few insurers
maintain their own
loan offices. Most
purchase loans were
originated by
commercial banks and
mortgage bankers. As
a result, the
lending activity of
life insurers is
often not as visible
as savings and loan
associations, mutual
savings banks, or
commercial
banks.
Life
Insurance Companies To
Mortgage Bankers
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