A Life Settlement is the sale of an existing life insurance policy that is no longer wanted or needed. The seller, usually age 65+, sells and transfers their ownership and beneficiary rights to the policy for a cash payment. The investor buys the policy at a discount and holds it until maturity and receives the full face value.
Consider what happens when business owners and wealthy individuals don’t need or want insurance policies anymore… what if they sell their businesses or their estates become liquid, or they determine that they can no longer afford the premiums. What are their options?
Most insurance companies provide policyholders 3 options and purposely fail to mention the 4th option:
- Option 1: Take the cash value and cancel their policy.
- Option 2: Take a “paid-up” policy for a much lesser amount.
- Option 3: Let the cash value pay the premiums for a period of time and then let the policy lapse.
These 3 options are very good for the insurance company as they save billions of dollars each year, by not paying the death benefit; however, the insurance company purposely does not inform the policyholder of their 4th option!
- Option 4: sell your insurance policy to an investor for its fair market value. The fair market value is whatever someone is willing to pay for the policy on the secondary market. On average a Life Settlement will pay the insured approximately 60% of all the premiums they have paid in over the years. This is called a Life Settlement. It is turning a death benefit into a living benefit.
Life Settlements are still uncommon knowledge to most people. Even the majority of financial services professional are still ignorant of this asset. According to Conning Research, less than 15% of all professionals who should be knowledgeable about this asset have no working knowledge of it at all.
Until recently, life settlements have been used primarily as an institutional /commercial investment for decades. It has only been made available to retail investors in the past few years and only through a small number of companies. Most security firms do not offer their clients information or the opportunity to invest in life settlements
Big industries and big investors have pursued the life settlement market due to the degree of protection and the avoidance of market and economist risk. The Return of their Principal and Return on their Principal are contractual obligations of highly rated insurance companies and not subject to any market or economic considerations.
Life Settlements is an ideal investment for many for the following reasons:
- Safety and Security
- Contractual Agreements with A rated or better
- All policies are underwritten by Legal Reserve Life Insurance Companies
- Uncorrelated to stock market, oil prices, interest rates or terrorism
- All policies past contestability periods
- Medium to Long term
- Buy and hold type asset
- Preservation of principal
- Absolute payout
- Diversification for an existing portfolio
- Reduces volatility in an investment portfolio by avoidance of market and worldly events
- Clear expectation of payment
- The exact dollar gain is known
- The final payout is known before the purchase
- No Management Fees
- All fees are included in the acquisition cost
- No reduction in working capital due to fees
“Life Settlements are the only asset which can truly be said to provide absolute returns. They are not correlated to any traded market – whether stock, bond, currency or commodity markets – nor to political or economic upheaval. Once invested the only variable affecting a Fund’s return is the life expectancy of the policies held.”