Life Settlements: Why Investors Love Them to Death

“Insurance: An ingenious modern game of chance in which the player is permitted to enjoy the comfortable conviction that he is beating the man who keeps the table.”
– Ambrose Bierce, American journalist

Insurance is indeed a game of odds. You might never need car insurance or fire insurance, but you wouldn’t want to get caught without it. Sometimes insurance “pays off,” and other times, it just gives the insured peace of mind (or the ability to legally drive or obtain a mortgage.)

However, permanent life insurance is another matter. Unless the policy is surrendered or allowed to lapse, a death settlement will eventually be paid. The only questions are, “When?” and, “To whom?”

Typically, the beneficiary used to be a spouse, or other family members. Very occasionally, the beneficiary was an employer or business partner. Now, a new asset class known as Life Settlements has expanded the pool of beneficiaries to include investors who have direct fractional ownership interests (DFO) in life insurance policies.

The benefits to the investor are many. Life Settlements:

  • Are unrelated to domestic stock, bond and real estate markets. Thus they make an effective hedge against other investments as well as a reliable investment on their own.
  • Cannot be affected to global economics and politics, offering stability in volatile times.
  • Provide true portfolio diversification. Having small cap foreign stocks and large cap domestic stocks is not “diversification.”
  • Incur no active management or ongoing management fees. They are a “buy and hold” investment.
  • Are not dependent upon management skills. The investor has purchased an asset with a stated future value at a discount to its face value. The only variable is time.
  • Perform consistently. Research has shown average and median returns of high single digit and, more frequently, low double-digit returns for investors.

As with almost any investment, Life Settlements aren’t for everyone. The main downsides to Life Settlements as an investment are:

  • Lack of liquidity. The funds you invest could be tied up for 2 years, 7 years, or longer. You have no way of knowing beforehand.
  • Variable rates of return. If a policy “goes short” and pays early, say, in two years, it will earn a much higher rate (past investors have sometimes earned as much as 30%) than a policy that “goes long,” perhaps ten years or more, which might earn in a more conservative range (i.e., comparable to that of a bank CD).
  • Minimum investment limits. Life Settlements are not appropriate for everyone, because they require at least $50,000 to get started, and we can only work with accredited investors.  And ideally, an investor would buy an interest in several policies so that they can be a hedge against each other.

If  the moods of the stock market make you nervous and the potential “upside” of bonds or bank CD’s leaves you underwhelmed, our team would love to help you explore if Life Settlements or other alternative investments might make sense for your portfolio.

Want to know more?
If you would like more information about investing in Life Settlements, we’d like to send you a 19-minute video that explains them in greater detail. Click Here to find out how you can receive instant access to this video.

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