Questions and Answers
Q&A
What is a “Life Settlement”?
Life settlements
are a new asset class, so new that many invertors have not heard about them
before. A life settlement is simply
the sale, or transfer of ownership, of an existing life insurance policy to
another party. Typically, the
individual selling the policy no longer wants or needs it, and desires to sell
it to a third party, often a group of investors.
Then, upon the maturity of the policy, the group of investors receives
back their principal and their return on the investment through the death
benefit of the policy. (For those
investors who purchase bonds, one would liken this investment to a zero coupon
bond, but without a fixed maturity date and no “phantom” taxes.)
Life Partners
Life Partners,
Inc. is the company that makes life settlements available to the retail
investor. Headquartered in
Transparency,
Regulation, and Investor Comfort
LPHI is a publicly
traded company, so all of its quarterly and annual financial results are
available to the public. Because it
is a publicly traded company listed on the NASDAQ, LPHI is regulated by the SEC
and NASD. Additionally, Life
Partners, Inc. is regulated by the Texas Department of Insurance.
Finally, your investment in
life settlements is held in an account opened for you at Sterling Trust.
Sterling Trust functions as Life Partners’ escrow agent, closing all
transactions on behalf of investors and Life Partners.
Sterling Trust is an independent trust company that is regulated by the
Texas Department of Banking and whose parent company is traded on the NASDAQ
(ticker: UWBK).
No Hidden Fees
Life Partners,
Inc. prices its life settlement transactions to include all transactions fees.
That means there are no additional fees or leads added to your initial
acquisition cost. By contrast, many
mutual funds of asset managers assess annual fees against investment funds,
which decrease the investor’s total return over time.
(Please note that for qualified funds, a custodian will assess fees
associated with maintaining your account.)
Types of Monies
That You Can Invest
Life settlement
investments can be made with various types of funds, whether they are
tax-deferred IRAs and 401Ks, ROTH IRAs, or straight “cash” investments for which
taxes have already been paid. Life
Partners has relationships with custodians that enable investors to invest in
life settlements. Therefore, any
paperwork requited to roll over monies from other custodians will be completed
for investors saving you time and effort.
This makes the transaction simple and time efficient for any investor.
A Force for Good
Life Partners
deals directly with individuals who desire to sell, or transfer ownership of,
their life insurance policies.
Typically, the policies are “special purpose” policies that have been purchased
by high net worth individuals for estate planning purposes.
Frequently, there comes a time when the policy holder or their families
no longer want or need these policies, and therefore desire to sell them.
Life Partners provides these families with cash for their policies,
turning a “death” benefit into a “living” benefit.
In a 2003 article by The Economist, the magazine called the secondary
market for insurance policies “good for consumers.”
Other Investors in
Life Settlements
Although life
settlements may be new to retail investors, they are not new to institutions.
Companies such as Merrill Lynch, Citigroup, Credit Suisse First Boston,
Bear Stearns, CAN and Berkshire Hathaway (Warren Buffet’s Investment Company)
have all financed or invested in life settlements.
Although these companies have not offered these types of investments to
their retail customer, they have made the investments on their own behalf due to
the attractive potential rates of return that this asset class can produce.
Too Good to Be
True?
Because most
retail investors are used to achieving single digit returns in their portfolios,
many are skeptical about life settlements because of their potential for high
returns without a parity of risk. Of
course, all investments have particular risk associated with them and life
settlements are no exception. With
life settlements, a lack of liquidity and the risk that the insured lives beyond
the anticipated life expectance are the two primary risks.
Unlike stocks of bonds, life settlements are not liquid.
They are a growth instrument, not an income producing investment.
Therefore, any purchase of life settlements should be made with funds
that you do not need to access in the short run.
If the insured does outlive his or her life expectancy, investors will be
required to pay their portion of the annual premium.
Some policies will “go long,” and some policies will mature early.
However, in order to ameliorate that risk, policies are priced to yield
double digit returns even if the insured outlives his or her life expectancy by
several years.
This website is informational only, and is meant only to provide you with general information regarding life settlement investments. This website is not an offer to sell or a solicitation of an offer to buy life settlements. Life settlement interests may not be available in your state. The representations and opinion in this website are solely those of investingmakesmesick.com