Life Settlements

Actually, life settlements are not new. They have been around for the better part of 25 years. This new asset class provides the potential for handsome returns while giving the investor a safe, non-correlated investment alternative. However, most life settlement businesses are conducted at the "institutional" level, with portfolios of hundreds of millions of dollars in life insurance contracts bought and sold. Companies like Berkshire Hathaway, Merrill Lynch and Morgan Stanley invested millions into life settlement contracts. Until recently, there was no way for an individual investor to participate in this asset class. Now, there are companies in the marketplace who will sell fractional ownership in life settlement investments for as little as $50,000.

What are life settlements anyway? A life settlement is simply the sale of an existing life insurance policy by a terminally ill or elderly person to another party. The price of the policy is negotiated and sold by the owner at a discount to the face amount. The purchaser then collects the full amount paid out under the policy. Life settlements are attractive to policyholders because they provide a secondary market for life insurance policies that are no longer needed or wanted. Investors are attracted to life settlements because they offer the opportunity for potentially high returns that are not tied to stock or bond markets, interest rates, or business cycles.

Over the past few years, the market for life settlement has grown substantially both from the demand and supply sides of the transaction with an increase in the average face amount of policies presented for sale. Based on our market research, the total face value of life settlement transactions completed during 2006 was approximately $5 Billion in face amount. In 2005, Sanford C. Bernstein and Company, LLC, a research unit of Alliance Bernstein, L.P., estimated the market to be approximately $13 Billion in face value of policies purchased from 1998 through 2005.

Because of the large number of policies available and the diversification that life settlements provide, interest from both individual and institutional purchasers will continue to grow steadily throughout the next fiscal year.

Are life settlements right for you? Contact your Comprehensive Financial Services financial advisor and schedule an appointment to talk about how life settlements may be integrated into your portfolio.