The Life Settlement Investment: A Closer Look
Why consider a Life Settlement investment? Whether you are looking to build or redeploy capital, a life settlement investment can provide a high return with minimal risk. Although not as popular or flashy as some other investment opportunities, Life Settlement investments come with one certainty. At some point, the investor will receive the benefit of a return on investment. Every life insurance policy settles. As an investor, one knows what the payback will be, they just do not know exactly when it will be received.
Rate of Return
The primary determining factors affecting the rate of return in a life settlement investment are the discounted purchase price of the policy, the annual premium paid to the insurance carrier necessary to keep the policy in force, and the maturity or the time in which the insured passes. The maturity is the factor with the most uncertainty. This factor is somewhat mitigated by obtaining a life expectancy report by a third party, highly reputable company specializing in evaluating life expectancies. Consequently, the longer the maturity, the longer premiums are being paid, the lower the annualized return to the investor, primarily due to the time value of money. Considering these factors, there is potential for higher or lower return on investment. Historically, investors can expect to receive double digit returns when investing in several life settlement policies.
The financial world mantra is “Diversify.” Most investment options—including stocks, bonds, real estate, and private equity—are tied to interest rates, the financial markets and the overall health of the domestic and global economy. Life Settlement investments provide true diversification asset uniquely positioned to stay uncorrelated to any of the traditional capital markets. This value has prompted some of the biggest investors in the world to take part, including Berkshire-Hathaway.
Are There Risks Associated With a Life Settlement?
Life Settlements have their own associated risks, mainly the uncertainty of the maturity of a policy. An investor must be prepared to keep the investment through maturity. Life Settlements are illiquid and considered a growth instrument; they are not income producing and should only be purchased with funds not requiring immediately access. There are also annual premium payments required while the policies are still active. All estimated costs are provided before committing to the investment. To mitigate overall risk of non-payment, there is an important set of criteria for purchasing life insurance policies. This includes the evaluation of the investment-rated, legal reserve life insurance companies who serve as the originators of the policies.
Who Can Invest?
Life settlement investments are available for accredited investors only, that being an investor with assets greater than $1,000,000 or a minimum annual income of $250,000. LIMC offers investments via a Private Placement Memorandum (PPM), a private offering to investors where numerous investors are pooled into one partnership, purchasing shares or units. Private Placements are securities, structured through a Regulation D exemption, Rule 506. LIMC also offers private portfolios for various entities including individuals, families, trusts, and structured private equity groups. We can fit and customize to your investment buying parameters.
Acquisition of Policies
LIMC is fortunate to partner with agents, brokers, and providers from across the nation. These unique relationships help LIMC acquire the best possible products in the marketplace, ultimately resulting in higher returns than its peers. A large factor in the investment return is determined by the acquisition price of the policy. LIMC staff considers the price, cost of insurance premiums, type of insurance policy, the quality of the insurance carrier, all data regarding the insured, including health, family, and social history. A life expectancy report based on current medical and social history available, is obtained from a reputable life expectancy provider. LIMC partners with several companies within the industry. We endeavor through our analysis and stringent due diligence process to provide our investors with high quality life polices with the probability of high returns.
Managing Your Investment
LIMC currently manages over eighty polices and one hundred and eighty-five investment partnerships. All Private Placement offerings will be managed by LIMC, providing obituary monitoring, premium optimization and payment, investor annual capital call collection, and excellent investor customer service. LIMC offers portfolio management for private portfolios, also tailored to the investor’s needs. The LIMC staff works to make the investor experience the best it can possibly be, continuing to grow, evolve, and find better ways to serve.
The Future of Life Settlements
According to the article by Donna Horowitz, senior editor of the Life Settlement Report, published on June 6, 2018, titled “Life Settlement Market Grows 19% Last Year, Continues Upward Projectory”, there were 2,027 reported policy sales for a total of $2.8 billion in policy face amount. “The growth of the life settlement market is good news for seniors who want to sell their life insurance policies and recoup some cash or get out from under the burden of paying high premiums,” said Ms. Horowitz. Even though the 1911 Supreme Court case Gribsgy vs. Russell, gave birth to the life settlement market, approximately 90% of life policy holders are not familiar with the concept. With heavy television advertising by the larger firms, this emerging market is growing.