Life Settlement Investments Pros and Cons

Looks like everyone is interested in life settlements.

It's been said that the best business deals are those that leave both parties disappointed and dissatisfied.

But maybe it's time to re-think that old axiom.

Life settlements are win-win financial deals that can deliver both the buyer and seller bundles of cash, which naturally leaves both parties delighted.

The holder of the policy decides it is either unneeded or unaffordable and sells it for a price that is more than the amount of the cash value. The buyer, who is either an individual or an institutional investment firm, pays that price, takes over the monthly premium payments and receives the death benefit once the policy ends.

Everybody wins, which might explain why the popularity of life settlement investments is growing.

A few weeks ago, a Florida-based licensed life-settlement buyer reported growth of nearly 20 percent in the number of transactions it completed last year. Then, a couple of days later, The Deal released results from its annual survey of the life settlement market–and things looked even better.

According to the deal, life settlement transactions increased 47 percent last year. Yes, it looks like everyone is interested in life settlement investments.

But are they right for you?

Before you jump in headfirst and join the growing number of investors taking advantage of this alternative investment opportunity, make sure you understand the pros and cons of life settlement investing.

Here's a high-level look at some of them:

Life Settlement Investment Pros

• Life settlement transactions are highly regulated. The U.S. Securities and Exchange Commission has been closely watching the life settlement market for years, and the federal government has put in place regulations to protect both sellers and buyers.
  
  Life settlements might be an alternative investment opportunity, but they are highly regulated across the country.
• There has never been more data. When you invest in life settlements, time is the main risk factor. The longer the policy holder, or seller, lives, the smaller the return. Thankfully, life expectancy underwriters have become much more adept and accurate at estimating life expectancy.
  
  There is still risk involved in life settlement investments, but the industry has become much better at mitigating it for investors.
• Higher returns. While no one can ever guarantee you a rate of return, it is a fact that many life settlement investments have typically delivered returns in the 10 to 14 percent range. The returns from life settlement investments tend to be better than the equity markets and major market indices.

Life Settlement Investment Cons

• Longevity. There is no way of knowing how long someone is going to live–especially in a world where the pace of medical innovation and advancement is faster than ever.
  
  Once the seller breaks the expected lifespan barrier, the expected return rate starts diminishing.
• Underwriting. Even though the industry has made incredible progress in the area of determining accurate life expectancy, there are still those underwriters who get it wrong.
  
  Doing your research about the quality of underwriters can help minimize this downside of life settlement investing.
• Access. Not everyone can invest in life settlement. In most states, you have to be recognized as a professional in the financial sector who has the appropriate credentials.
  
  Luckily, there are many large, reputable investment companies that have the proper credentials and let individual investors buy into their life settlement funds.

Life settlement investing is growing in popularity. If you think it might be right for you, contact us to discuss the risks, rewards, pros, cons, and possibilities.

After all, wouldn't you like to be part of one of the few win-win investment opportunities?