Why Investors Should Consider Life Settlements as an Alternative Asset Class
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- Author: Windsor Life Settlements
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What Are Life Settlements?
A life settlement involves the sale of an existing life insurance policy by the policyholder to a third-party investor for a lump sum payment. The investor takes over the premium payments and collects the death benefit upon the insured’s passing. This transaction provides policyholders with liquidity while offering investors a non-market-correlated asset with predictable returns.
Why Invest in Life Settlements?
Attractive Risk-Adjusted Returns
Life settlements have historically provided returns in the 8%–12% range, according to industry reports (Conning, 2022). These returns are competitive with equities but come with significantly lower volatility.
Low Correlation to Market Fluctuations
Unlike stocks and bonds, life settlements are not directly impacted by interest rate movements, economic downturns, or geopolitical events, making them an effective hedge against market volatility.
Predictable Cash Flows
With proper actuarial analysis, life settlements offer investors a degree of predictability regarding future cash flows, unlike more speculative investments.
Regulated and Growing Market
The life settlement industry is regulated in most U.S. states, ensuring transparency and consumer protection. The market has grown steadily, with an estimated $4 billion in policy face value sold annually (Life Insurance Settlement Association, 2023).
Life Settlements Help People
Life settlements provide a critical financial solution for seniors who no longer need or can no longer afford their policies. Instead of surrendering policies for minimal cash value or letting them lapse, policyholders can receive significantly higher payouts through life settlements. This additional liquidity can help cover medical expenses, retirement needs, or other financial obligations.Are Life Settlements a Good Investment Opportunity?
Life settlements are best suited for investors with a long-term horizon and a preference for stable, uncorrelated assets. While the market offers strong returns, investors should conduct thorough due diligence, assess policy selection rigorously, and partner with experienced fund managers or brokers to mitigate risks.
The life settlement market has been growing steadily, with increasing participation from institutional investors. The industry is projected to expand as more seniors become aware of this option and as investors recognize the potential benefits.
Some key market trends include:
Aging Population: With the baby boomer generation entering retirement, more individuals are seeking ways to unlock value from their life insurance policies.
Regulatory Support: The life settlement industry is well-regulated in the U.S., providing transparency and protection for both policyholders and investors.
Institutional Adoption: Pension funds, hedge funds, and family offices have increasingly incorporated life settlements into their portfolios.
According to Conning & Co., the life settlement market is expected to grow to $200 billion in the coming years as awareness and investor participation increase (Conning Report, 2023).
Should I Invest in a Life Settlement Fund?
For those new to the asset class, investing through a life settlement fund can be a prudent approach. These funds provide diversified exposure across multiple policies, reducing single-policy risk while leveraging industry expertise to optimize portfolio performance.
Investors can access the life settlement market in two primary ways:
Direct Investments: Purchasing individual policies can provide higher potential returns but requires extensive due diligence, medical underwriting expertise, and risk management.
Life Settlement Funds: These professionally managed funds pool multiple policies, offering investors diversification and reducing individual policy risk. Funds provide a more passive and accessible way to participate in the market.
For most investors, especially those new to the asset class, life settlement funds offer a balanced approach with professional management and risk mitigation.
Final Thoughts
Life settlements present a unique and compelling investment opportunity for those seeking alternative assets with stable, market-independent returns. With a growing, regulated market and a demonstrated track record of strong performance, this asset class is an attractive consideration for sophisticated investors.
Sources:
Wharton School of Business, “The Growing Role of Life Settlements in Institutional Portfolios,” 2021.
Life Insurance Settlement Association (LISA), “Understanding the True Value of Your Life Insurance Policy,” 2022.
Conning & Co., “2023 Life Settlement Market Outlook,” 2023.
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- Author: Windsor Life Settlements
- Published Date:
