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Steve Hunt: Understanding life settlement savings and investments
In America, life assurance (assurance is the correct name, as you "insure" against something that may happen, but "assure" against something that will happen, i.e. death) is a very big business, worth trillions of dollars.
In America, life assurance (assurance is the correct name, as you "insure" against something that may happen, but "assure" against something that will happen, i.e. death) is a very big business, worth trillions of dollars.A life assurance policy is an asset, no different to property, a car or a family heirloom. If 70-year-old Mr Clinton has fallen on hard times, what is he better off selling, his house, his car or his life assurance policy that he has no further use for?
Who should Mr Clinton sell his policy to? His insurance company for $50,000, or an investment company for $100,000?
Life settlements benefit those selling their policies – fact.
So how does the investment company benefit?
Let's say Mr Clinton's policy was for $500,000, he has a heart condition and his life expectancy is five years. The investment company who paid him $100,000 for the policy will receive the $500,000 when he dies. There was no risk to Mr Clinton in selling his policy. however, the investment company does take a risk, as there could be future medical development to improve his condition and Mr Clinton may therefore live for 15 years, not five.
This is why Wall Street is "securitising" life settlements. The more policies you buy, the lower the risk, it's a simple as that.
Wall Street may be cottoning on to this now, but Rockingham has been selling life settlement savings and investments for years, much to our customers' satisfaction. Many of our customers came out of equities and, consequently, they are very happy.
Returns on life settlements can be exceptional, although securitising does reduce possible returns, but it also significantly reduces risk:
If you have one policy and there is a cure for that policy holder's disease, then a potential 50 per cent return could reduce to a five per cent return.
However, if you have 100 policies which are spread across many conditions, geographical areas and insurance providers, you may have only a 20 per cent return, but if there is a cure for cancer, this may only reduce the return to 15 per cent. The more policies you have, the lower the risk.
The ARM Assured Income and Growth plans that we have been using for nearly three years are, in our opinion, some of the best life settlement providers globally and are currently paying 9.5 per cent per annum fixed for 10 years, as an income, or double your money in seven years for the growth plan; that's 10.41 per cent per annum in coupon yield (interest payment)!
So, if you have savings in ISAs, PEPs, regular savings plans and bank accounts, or in any pension plan, life settlements are very worthy of your consideration.
Should you wish to know more about saving/investing in life settlements, please call us on 0800 195 4980. We have considerable experience in the life settlement market and are happy to answer any questions that you may have.
One of the most respected consumer-led investment institutions in the world is Motley Fool, who recently released an article on life settlements, which you may find interesting: go to www.fool.com/investing/general/2009/09/11/this-new-product-could-save-wall-street.aspx
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