Life Settlements
For more information contact Larraine Mariano broker@empressgroupinc.com.
Life settlement is investing in the purchase of life insurance policies. This is a safe, conservative investment, which is not subject to market fluctuations such as real estate or stocks and bonds. Currently, the investment pays 8-11% per year, nearly double more familiar forms of investing. Contracts are available for from 4-7 years. Investors may bring after-tax money or qualified rollovers e.g. transfers from 401ks, 457s, TSAs, IRAs etc.
Life settlement money is invested with A and A+ rated companies only. No A or A+ company has ever defaulted on a policy.
88% of life policies are not paid to the initial beneficiaries. Holders sell the policy to take cash out. Policies are usually grouped and sold in a pool. Companies sell the policies to investors, in effect, making the investor the beneficiary of the policy. Should the insured live longer than the term of the investor contract, a small fee ensures a pay off at the end of the investment term (insurance on the insurance). Should the death of the insured occur before the term of the investment, investors receive the full payoff earlier.
Large private investors have invested billions in life settlements in the last 20 years. Banks and insurance companies (they actually buy the policies written by other companies) are also among the larger investors. Opportunities are now available for smaller investors with a minimum of $50,000. Last year $16 billion was invested in life settlements. Investments are projected to reach $160 billion by 2010.
Investors must qualify to invest, typically, by having a net worth of $1 million including equity and other assets. A lower net worth may be acceptable depending on the individual financial situation of the investor.
Scenario 1.
A grandparent invests $100,000 in a 10% life settlement for a new born grandchild. The policy is rolled over providing a college trust, creating wealth, and the ability to retire at an early age.
| Invested year 1 | $100,000 | 5 year investment term |
| Value year 6 |
$161,000 |
Roll over for 5 years |
| Value year 11 |
$257,000 |
Roll over for 7 years |
| Value year 18 |
$497,000 |
|
| College expense cash out |
- $247,000 |
Roll over $200,000 |
| Value at age 23 |
$320,000 |
5 year term |
| Value at age 28 |
$500,000 |
|
| Value at age 33 |
$800,000 |
|
| Value at age 38 |
$1,240,000 |
|
| Value at age 43 |
$1,984,000 |
|
| Value at age 48 |
$3,174,000 |
Scenario 2.
A 30 year old invests $100,000 into a life settlement to provide a retirement fund. At age 55 the dividends would be $100,000 per year taxable income. If retirement is at age 60, the dividends would be $168,000 per year taxable income.
| Invested at age 30 |
$100,000 |
5 year term |
| Value at age 35 |
$161,000 |
5 year term |
| Value at age 40 |
$257,000 |
5 year term |
| Value at age 45 |
$411,000 |
5 year term |
| Value at age 50 |
$657,000 | 5 year term |
| Value at age 55 | $1,053,000 | |
| Value at age 60 | $1,684,000 |
Scenario 3.
A 59 year old investor rolling over 300,000 from a 401k and taking $40,000 a year starting at age 64 and $50,000 a year from age 68.
| Roll over | $300,000 |
4 year |
| Value at age 64 | $395,000 | 4 year |
| Cash out | - $160,000 | |
| Roll over | $235,000 | 4 year |
| Value at age 68 | $340,000 | |
| Cash out | - $200,000 | |
| Roll over | $140,000 | 4 year |
| Value at age 72 | $202,000 |
