The structured settlement market, also known as ‘senior life settlements’ has been growing for the past year as more and more customers are cashing in their life insurance policies. Although this has always been an option for the policyholders, very few, know of its existence and its optimal uses.
Currently due to the current volatilities and market outlook, investors are looking for easy money alternatives that provide decent yields while mitigating a significant amount of risk.
For many investors, considering this type of product may be new, unusual or even slightly confusing. Thus, when making a decision on how to go about finding the right policy, it’s a perspective of immediate and long-term needs. Naturally, 3 essential elements play a fundamental role on which product to choose.
1. The investor’s short-term plan
For the most part, affluent investors, regardless of the type of investments they make, want to see some short-term positive return. Based on individual preferences, these terms may be of 3, 5 or even 10 years. Numerous professionals and investors alike consider this identical to the Real Estate arena because of the short cycle and the method of which the funds are placed.
Thus, when a policy is presented to the end user, the life expectancy (i.e. ‘term’) needs to be taken into consideration.
2. How much is being invested
Unlike traditional investment vehicles, the structured settlement market immensely favors volume purchasers. A small $500,000 policy, for example, can hypothetically cost $125,000. Whereas, a $10 million portfolio that comprises of 3 or more life policies may end up costing the investor $1.5 million.
Another interesting element in larger transactions is the aspect in which the benefits are paid. Since the portfolio contains multiple combined life products, they will most likely mature based on their independent terms. In essence, one policy may pay out the settlement in 3 years, whereas another in 5 years.
This amalgamation provides short to long-term liquidity for the buyer, by a randomized sequential order that benefits them.
3. If it is being used for hedging
While there are a greater number of investors buying these senior life settlements for the sake of keeping them as part of their portfolios, there are those who abundantly acquire them for hedging against unforeseen future losses.
A common use may be where the investor identifies a business opportunity in which he/she believes to be risky and at first hesitated to move forward. However, thanks to having access to the structured settlements, a virtually risk-free investment can be formulated by directly combining both the business and the life policy or portfolio into a single straightforward transaction.
Ideally, the structure resembles a large ‘savings account’ that grants any investor a shot at trying something out, without the element of risk or gambling.
Thanks to the many possibilities of being able to build multiple variations of transactions creatively, whether they are meant for business or not, investors should wholeheartedly consider using life settlements if they have the funds for it. Nothing else will provide a greater peace of mind than knowing that you can make an investment that won’t be affected by the markets, losses or unfortunate future obstacles.
Financier World Wide discusses a few important things that investors can educate themselves on in regards to conditions, roles of which investment managers play, the developments over the past year, how a valuation can be made to determine the best possible policy for you, and last but not least the overall procedures for due diligence.
Overall, any investment will require an investor to study the benefits, downsides as well as how significant it is to their investing goals and needs. On the basis in which the markets are leaning towards, it would be wise to consider having insurance alongside your existing investments. There are greater uncertainties now more than ever, preserving capital while moving forward with transactions wouldn’t be a bad idea.