Fractional Life Settlements – The New Way to Acquire Strong, Safe, In

Where can an investor receive an attractive rate of return while protecting their principle? The stock market is languishing, oil prices and inflation rates are high, interest rates are low and can only go upward, and real estate and the mortgage markets have been taking it on the chin.  
Anyone that has had their money in the stock market knows that it has not been performing well.  The S&P track record over the last ten years has been a disappointing 1 or 2% annually.  

That is a huge blow to anyone who is saving for retirement or just trying to beat inflation.  The last 10 years is commonly being referred to as the Lost Decade of savings by professional investors.  This Lost Decade is forcing folks to put off retirement, or reduce their anticipated income available if they retire.  For younger investors, it is also discouraging to realize that the last 10 years brought a negative real return (earnings minus inflation) to their portfolio.  
Economic data is indicating that there will not be a turnaround anytime soon.  So where can an investor realize an attractive return in a conservative investment without the roller coaster of the stock market?

Fractional Life Settlements are attracting an increasing amount of investment capital.  A Life Settlement is the sale of an existing life insurance policy by a terminally ill or elderly person to another party.  The price of the policy is negotiated and sold by the owner at a discount to the face amount.  The purchaser then collects the full amount paid out under the policy.

Following is an example of how it works: An elderly person who owns a large permanent life insurance policy does not want or need it anymore.  This could be due to affordability, estate tax law changes, or other various factors.  Most folks believe that they have two choices at that point – stop paying on the policy and let it lapse, or to take out the cash value of the policy (which is usually pennies on the dollar).  However there is a third option.  They can sell their policy on the open market to an investor(s) for cash.  The investor takes over the premium payments and receives the death benefit while the insured gives up all rights to the policy and receives cash now which enhances the quality of their remaining days.  For his participation, the investor historically earns a double digit return on his investment.  This creates a win-win for the insured and the investor.

Life Settlements are a very conservative investment.  The policies are backed by the strongest and largest legal reserve investment grade insurance companies in the world.  They have not failed to pay a death benefit in over 160 years.

Another attribute of Life Settlements is that they are an Uncorrelated Asset.  This means that their performance is not tied to any market.  Stocks can go down, oil prices can skyrocket, interest rates can rise, commercial real estate and the housing markets could collapse, foreign countries and their markets could plunge and it would not affect mortality rates.

As the markets become more global, it is increasing harder to diversify an investment portfolio.  Wall Street firms have known this for a long time.  Barclays, Berkshire Hathaway, Chase, GE Capital, and Merrill Lynch are some of the many institutional investors that have been purchasing Life Settlements for years.

Besides the low risk/high return feature of Life Settlements, another unique aspect of the investment is that each day that a policy is owned, it comes closer to maturity (death benefit payout).  Knowing this takes the emotion out of buy/sell decisions.  An investor does not need to check the paper every day to see how his portfolio is doing; he knows that with each passing day, he is closer to his policies maturing.

For years the Life Settlement field was open only to large institutional investors who can purchase entire policies at a time.  However, individual accredited and institutional investors can participate by purchasing Fractional Life Settlements.  These are non-pooled policies that allow investors to own a fraction of a number of policies.  Owning a small piece of several policies provides the diversification necessary to achieve a predictable rate of return for an individual life settlement portfolio.

Randy Martens is a life settlement expert and owner of Wealth Management and Asset Protection Group, LLC (WMap), in Austin, TX, dedicated to protecting and growing the assets of his clients through conservative investments such as Life Settlements.

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Copyright © Randy Martens 2008