Investments in Life settlements typically require a significant amount of capital. For example, a one million dollar face value life policy where the insured has an estimated life expectancy of 7 years and a premium load of 3% annually; may have a purchase price of 20% or 200,000 dollars and require an additional 210,000 for premiums to keep the policy in force for 7 years. In addition, there are other costs associate with maintaining the policy; however, these costs are much less significant.
Given the example above, the capital requirements to purchase and maintain many policies for the term of the life expectancy is significant.
Investors wishing to purchases only a few policies are susceptible to broad variations in returns on their investment. Those returns can be exceedingly high or low. When small amounts of polices (insured’s) are involved, the estimated life expectancy going long or short, will have a dramatic impact on the investment return.
For example; an investor owns four life insurance policies each with a life expectancy of 5 years. If one of those life expectancies actually matures in 7 years rather than 5, it will have an impact on your expected return.
To the contrary, when many polices are involved, the result of one or more estimated life expectances going long or short will have little impact on returns. Large portfolios compiled of many insured’s and a broad range of life expectancies can produce predictable returns and steady cash flow. Also, large portfolios have the added advantage of allowing for other diversifications such as; age, gender, health, size of policy, insurance carrier rating and premium loads.
SGI has the experience to assist you in the aggregation of a portfolio that meets your desired amount of investment capital, cash flow and return on investment.