Life Insurance Settlement Funds
A life insurance settlement is a transaction in which the owner of a permanent life insurance policy sells the policy to an investor for cash.
For example, imagine an 85 year old man with a $1,000,000 permanent life insurance policy that has $100k in cash value. He originally bought the policy to provide for his wife, but he has outlived her and needs money for increasing health expenses (or for any other reason). He could surrender the policy to the insurance company for $100k, but instead he sells the policy to an investment company for $400k through a life settlement. The investment company now owns the policy, and based upon the man’s health expects his life expectancy to be within the next 5-10 years. After the man’s passing the investor will receive the full death benefit of $1,000,000.
This provides a much better value for the policy owner and provides a great return opportunity for the investment company.
Investors can passively invest with these companies into what are called life insurance settlement funds. These funds are managed by experienced professionals who typically purchase dozens of insurance policies per fund. The profits are then shared between the managers and investors based on a predetermined split.