Are Life Settlements right for your portfolio?

About four years ago I was introduced to a new asset class, at least new to me. What if you could invest in something that has nothing to do with stock market performance, it has nothing to do with the highs and lows of real estate, and it has nothing to do with gas and oil or the economy?

The Wall Street Journal says…”The Industry’s 16 year history of annual returns of 10% to 15% has attracted European and Asian investors.

Bloomberg says… Life Settlements are the only asset which can truly be said to provide absolute returns they are not correlated to any traded stock, bond, currency or commodity markets, or political or economic upheaval. Once invested, the only variable is time.” reported that “Even Berkshire Hathaway Inc., the investments company headed by Warren Buffett, invested nearly $300 million in life settlements.”

Today I want to share with you a real case study of mine. I invested in life settlements with my checkbook control LLC and I want to share with you what that looked like.

First I found a reputable life settlement dealer. These are not viaticals that I’m investing in. A viatical is when you invest in a life insurance policy of someone that is terminally ill.  The life settlements that I invest in are with the elderly. Someone that has a life insurance policy that does not need it anymore.   Instead of letting the policy lapse they will sell it to a life settlement company that in turn sells me a portion of it. Here is a real case study of a policy that I invested in.

I invested in a policy of a 79 year old male who had a 4 million dollar policy; he was paid 2.2 million dollars for his policy. I bought ten thousand dollars worth of this policy. His life expectancy is three to five years. My yield on this is 81.82%, my ten thousand dollars is now worth eighteen thousand one hundred eight one dollars. I know how much I will get paid I just don’t know when.

The life settlement company that I buy from requires the policy holder to pay the premium for the life expectancy period; in this case three to five years worth of premiums are paid by the policy holder. The risk that we have to the amount of the return is that if the policy holder lives beyond the life expectancy period, the beneficiaries of this policy would have to pay the yearly premium. In my case in own 0.45 percent of the policy, I then would have to pay 0.45 percent of the annual premium.  That amount would be $785.00. I would have to come up with that amount if the policy goes to the sixth year. Remember the policy holder paid five years worth of premiums as part of the agreement.

The thing I like most about this asset class is that it has nothing to do with our economy, the price of oil and gas, it’s unrelated to the stock market and to the real estate market.  It truly stands alone.

I know that some investors look at this asset class and cringe. If this is a troubling investment choice then I say don’t lose any sleep over it.  Move on to other alternative asset classes.  This is not for everyone.  My intention is continue to educate our clients on the many different asset classes available to you. Good research and due diligence on your part is always encouraged.

Timothy Schubert

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