A Primer on Life Settlements as an Alternative Global Investment

What are alternative investments?

An alternative investment is a financial asset that does not fall into one of the conventional investment categories like stocks, bonds, and cash. Alternative investments can include private equity or venture capital, hedge funds, managed futures, art and antiques, commodities, real estate, life settlements, among others.

Why consider investing in alternative assets?

Alternative assets are often attractive because of the opportunity they provide to diversify an investment portfolio away from traditional investments, which consequently reduces overall portfolio risk. They are typically not correlated to returns from other asset classes and can generate good returns even when other asset classes are not faring well.

What are Life Settlements?

While you may have come across most of the alternative assets, life settlements is a unique investment opportunity which most investors have not been exposed to. A life settlement refers to the sale of an existing insurance policy to a third party (investor) for a one-time cash payment. Payment is more than the surrender value of the policy but much less than the actual death benefit. After the sale, the purchaser becomes the policy's?beneficiary?and assumes payment of its premiums. By doing so, they receive the death benefit when the insured passes away.

Why would policyholders sell their policies?

Often policyholders no longer need the insurance (no financial dependents), are unable or unwilling to cover the premiums or have an immediate need for cash. Rather than allowing a policy to lapse, a policy owner could sell the policy, generating more than the surrender value.?

How do investors make profit?

The investor purchases the policy and pays any premiums while the policy holder is alive and receives the death benefit when the insured passes away. The return to the investor will be the policy sum insured less the purchase price and premiums paid.?

It is important to note that not all life insurance policies or holders are suitable for life settlement options. Candidates for life settlements are typically 65 or older or have health issues. The life settlement fund will make some actuarial assumptions related to life expectancy, health issues and other factors to arrive at expected targeted returns. The actual return might be more than targeted return if the policyholder passes away sooner than expected and vice versa.

?What is the size of the life settlement market?

The U.S. life insurance market is a multi-trillion dollar industry, an estimated $20 trillion of life coverage currently in force with ~$144 million in force policies comprised of universal life, variable universal life, term and whole life.?An estimated 88% of all life insurance policies are lapsed or surrendered back to the insurance carriers. Life settlement industry sources estimate that over $200 billion worth of policy benefits have been settled by the life settlement market and are actively being managed.

The life settlement industry is poised to grow substantially in the coming years driven by an aging population and generally low balance in retirement savings accounts. As shown in the chart below, the 65+ % of population is growing rapidly, yet 56% of retiring Americans do not have sufficient savings to pay their future expenses, which can resort to liquidating their life insurance assets to produce much needed funding for retirement.

Why consider investing in Life Settlement Funds?

Life Settlement Fund is a unique investment opportunity that helps in portfolio diversification and provides potential for higher risk adjusted return with low correlation to other investments, specially given the current volatility in equity, bond and commodity markets. The fund return is based on life expectancy which is unaffected by the ups and downs of capital markets, thus demonstrating the ability to generate uncorrelated returns. Interestingly, marquee investors like Warren Buffet and Bill Gates have put billions into life settlements!

?Furthermore, the insurance industry is heavily regulated and there is minimal risk of an insurer not paying out a death benefit on a life policy. Life settlements are usually positive for both the seller and the buyer, as the seller receives significantly more for their policy than they would selling it back to their insurance company, and the buyer typically makes a healthy profit. Investing in life settlements creates a positive social impact as such investments put money in the hands of the insured elderly which becomes a valuable source of income whey they need it the most.

To know more about how to invest in Life Settlement space and other similar interesting opportunities, please contact us at 98920 34427 or [email protected]

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