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.
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