How to Invest in Life Settlements


Life settlement is a special type of investment option that is recently becoming more and more popular. This is a new asset class gaining ground with time. First a little background on what they are. Terminally ill seniors often sell their life insurance policies and cash out the money for their expenses. These are sold to third parties for less than their cash value. The purchaser now becomes the beneficiary of the policy and gets to cash the full amount upon the death of the original policy holder. There is a huge industry involved in brokering and buying these policies and selling it to others. With due diligence life settlements can be a viable option for no market risk investments. Here are the steps to research and find the right investment in this asset class.

Life settlement investment could be part of an investment portfolio outside the equity market. The return on investment depends on how long the policy holder lives. Since death is imminent, the beneficiary WILL get the full amount. On average one can earn 10% without market risk. However, it is important to do the due diligence to check some factors before choosing the insurance policies to invest your money.

Find a broker that sells these life settlements. Normally these are private companies or agents dealing with this type of investment. Find the one in your area. Make sure the agent is licensed to trade life settlements.

When you invest your money , ask your broker to spread it across multiple policies for diversification. Normally these brokers have a pool of policies and a group of investors. So, you can choose to distribute your investment across policies. It is not a very good idea to put all your money in single insurance policy.

Look for the life settlement policies that are at least two years old. After two years they become incontestable for 70% value. This eliminates "wet ink" policies bought just for selling purpose.

Ensure that there are no other beneficiaries such as creditors contesting for the payout on the insurance policy.

Some brokers may ask for large amount of investment. Since you don't want to go big-bang, find the options with smaller investments to start with.

Once you are done with due diligence you are ready to invest on life settlements.

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