Life Settlements: An Easy Way to Make 15.83% Average Rate of Return Per Year



Facebook Share Icon LinkedIn Share Icon Twitter Share Icon Share by EMail icon Print Icon

The stock market is uncertain. Some investors have a knack for winning the stock market game, but for most, the gains are small or net losses exceed net gains. Almost all readers of this column tell me, “I’m a conservative investor.” They put their money in so-called traditionally safe investments—CDs, treasury bonds, municipal bonds and the like—that offer only paltry returns.

Is there an investment that can match the potential high returns of successful stock market investors, yet has the basic characteristic (no market risk) of traditional safe investments? Yes, but chances are you’ve never heard of this investment.

What is the investment? It’s Life Settlement (LS), also sometimes called senior settlement. Both are the same.

The best way to understand how an LS works is by an example. Joe, 69 years old, owns a life insurance policy with a $500,000 death benefit and a $65,000 cash surrender value (CSV).

Joe wants to stop paying premiums. Typically, he would cancel the policy and get the $65,000 CSV from the insurance company.

Instead, an investor (really a group of investors) buys Joe’s policy for $150,000, paid in cash to Joe immediately. The investors now own the policy and will receive the $500,000 death benefit when Joe dies.

Suppose you are one of the investors. You invest $100,000. You will wind up with a diversified portfolio of LSs (actually, a fractional interest in many LSs). For example, one of the LSs will be a fractional interest in Joe’s $500,000 policy—say 3%, or $15,000.

Joe’s LS will pay you exactly $15,000 (includes your principal amount invested and profit) when Joe dies. Insurance companies love people like Joe when they terminate their policies.

And why not? The insurance company pays a mere $65,000 for the CSV and is off the hook for Joe’s $500,000 death benefit.

Terminated policies are highly profitable for insurance companies. So of course, it’s in their best interest to keep the entire life settlement industry a secret. Why? Because investors—like you—now have found a simple and easy way to help the Joes of the world and at the same time stand tall in the profit shoes of the insurance companies. Neat!

As an LS investor you can enjoy an average rate of return of 15.83% per year, never worrying about stock market volatility, interest rates or other external conditions. And best of all, you keep 100% of the profit because there are no fees or costs when you buy an LS.

What are the tax consequences of your LS profits? There are only two simple rules: 1) The tax on your profit is deferred until you actually receive your principal and profit; (2) your profit is taxed as ordinary income.

Even the big-hitter investors are buying in to the concept of life settlements. Following is a quote from the May 18, 2005 issue of the Wall Street Journal titled “Moving the Market”: “AIG [American International Group Inc., the insurance giant] has bought less than 1,500 policies since 2001…

“A few years ago, Berkshire Hathaway Inc., the investment vehicle of billionaire investor Warren Buffett, began buying life settlements…”

The company offering the LSs discussed in this article is a publicly traded company trading on the NASDAQ. The average rate of return on investments has been 15.83% per year throughout the company’s 16 years of operating history.

If you want to make a killing on your investments, this is not for you. But if a set rate of return with no market risk is of interest to you, contact me at the Web address below or ask your professional advisor to check out LSs for your own personal investments, qualified plans (i.e. 401(k), IRA) or other funds you control.