As our friend Mike Tolleson often says, "Friends don't let friends invest in the stock market!"
Given the 634 point drop this week, I am thankful we took this advice a few years ago. Since we moved our long-term funds out of market correlated investments and into Life Settlements, none of the negative events of the last few years have effected the value of our portfolio.
For those who may be unfamiliar, here is why. When you own a Life Settlement Policy, you own a known payout and are contracted with a legal reserve insurance company to receive that payout at a future date when a policy matures. Even during the Great Depression, legal reserves fulfilled their contractual policy obligations to pay their claims.
Nobody has ever lost money owning a Life Settlement even when ideal scenarios aren't realized and the life expectancy estimates on the insured are wrong.
For example, since January of 2004 till April of 2011, the company we buy Life Settlements through, has purchased 744 policies. 31 have matured early. 61 have gone longer than the estimated life expectancy and additional premiums are being paid. 652 are still within the estimated life expectancies. If all 713 policies went 2 years longer than the estimated life expectancy including the additional premium (no more early maturities) the worst the portfolio could do is 8.14%.
So with that said, if all 713 policies went 4 years past the estimated life expectancy with no more maturities, then the worst the whole portfolio could do is 5.14%. And by-the-way, since this data was published in April of this year, there have been 3 senior life settlements mature which payed full benefits to all investors and provided an even more positive impact on the numbers above.
In contrast, had our monies been in market correlated investments, any gains we made in the past 12 months would have been erased in the past 8 days alone!
I share this information to say that given the state of the economy and the forecast for the foreseeable future. I have no hesitation whatsoever in placing qualified clients whose portfolios are suited for this non-correlated asset class. Also, there is a no-brainer for IRA's, Roth IRA's, 401k's, Simple & SEP IRA's, Trust Funds, long term investment cash.
As the word "Default" becomes more common in our everyday vernacular. The question of "How much is my ROI?" will take a back seat to the question of "Who is paying and will the check clear the bank?". For me, to be contracted with a "Legal Reserve Life Insurance Company" to get ROI's in the 7-12% annually with the kind of safety and security built-in that this asset offers, gives me peace of mind.
If you or others you know would like to learn more about this unique asset class, shoot us an email and we will be happy to send you some free resources that will help you begin your own due diligence into Life Settlements.
