For individuals looking for an investment to start a business, expand a personal financial portfolio, or improve estate planning, life settlements provide an alternate option to higher risk and lower return products.
Often, especially in recent years, seemingly unrelated asset classes have affected each other in significantly meaningful ways, known in investment parlance as correlation.
Life settlements are non-correlative assets that offer today’s investors an appealing combination of benefits, including:
Non-correlated assets in one’s asset allocation have the effect of reducing overall volatility and stabilizing returns.
In simplest terms, a life settlement is a no longer wanted, needed or affordable life insurance contract that an insured (typically 75 years of age or older) sells to a third party for more than the surrender value offered by a US insurance company but less than the face amount of the insurance policy. The new owner becomes the beneficiary of the death benefit and assumes responsibility for the payment of premiums until maturity.
Life settlements derive yield from only one trigger: the longevity of the insured. In keeping with sound asset allocation and risk diversification practices, a portfolio approach of multiple life settlement contracts is taken in order to diversify the risk that any one insured lives beyond their actuarially calculated Life Expectancy estimation. This is known as extended longevity risk.
As a result, life settlements are a “buy and hold” strategy that offer little to no liquidity. Investors should carefully take into account their long- term capital needs during the maturation cycle. Until a contract matures, an investor will forego other opportunities to deploy their capital elsewhere.
The exact date that an investor will receive a contract payout is unknown. Human longevity cannot be precisely determined therefore, an investor should expect in some cases to be subjected to extended longevity.
Life expectancy appraisals performed by qualified longevity actuaries accompany each contract in a portfolio. A life expectancy appraisal is a projection of the insured’s longevity based on detailed review of the insured’s current health status but it is purely a qualified opinion. An insured’s actual mortality can occur at any time.
Life settlements are intended for accredited, sophisticated investors. Investment in a portfolio of life settlements can only be acquired through a properly credentialed advisor.
To learn more about how a life settlement can be a valuable option for you as an investor, please call us today 760-560-8290.