Just Some Of What's Out There
The
conventional wisdom is that for accredited individuals, investing in
life settlements is best accomplished through a pooled or packaged
structure. That makes the direct investments available from Life
Partners Holdings, Inc. all the more intriguing.
The Texas-based life settlement provider offers fractionalized, undivided interests in specific contracts that it buys - 10% of the Jones policy, for instance. The minimum investment is $50,000, although as little as $10,000 may be put in any one policy, says Tim Harper, head of BG&S Management Consultants in Grapevine, Texas, a field marketing organization for Life Partners. The contracts are discounted to a mid-teen target return and are managed for the investor after acquisition. A third-party escrow agent handles the money.
If someone else is buying the contracts-a fund manager, say-dig into the assumptions being used. For one thing, there is a feeling that some purchasers are being too aggressive with their mortality assumptions in order to project higher returns. Further, you could discover variability in buyers' levels of expertise.
"Investors should be asking managers a lot of technical questions to make sure they know what they are doing," says Daily, the Manhattan insurance consultant. He typically works the sell-side of the biz and frankly, he's a little taken aback by some of what he's seen across the table.
"Some funders cannot model exotic features such as return-of-premium riders and no-lapse guarantees, and therefore they don't factor those into the purchase price," Daily says. "In a sense, that creates opportunities on the buy-side because it means policies with those features are actually worth more than the market thinks and can be picked up at bargain prices."
Eventually such inefficiencies will be wrung out of this still-developing market. As it becomes more rationalized and commoditized, Forster predicts investors will enjoy greater certainty and transparency. But the investment returns? "They will likely be lower," he says.
Another unique offering is the new Legacy Loan. It allows policy owners to raise cash by borrowing against their life insurance, rather than selling it. The loans are then packaged and sold to institutions including hedge funds that accept accredited high-net-worth investors. For more information, visit www.LegacyLoan.com.