Life settlements - good, bad or ugly?

Life settlements – good, bad or ugly?

Life settlement funds are becoming increasingly popular. They promise, in many cases, double-digit investment returns from an asset class which is uncorrelated to either the stock or bond markets. On this basis it would seem every portfolio should have some exposure. However, all is not what it first seems.

What is a life settlement fund?

Life settlement funds invest in second-hand US life insurance policies. In principle the idea is sound: a terminally ill person in need of cash can’t benefit from their life insurance policy as it will only pay out when they die. Therefore they sell the policy to a life settlement fund. The fund owns the policy and continues to pay the premiums, receiving the death benefit when the original policyholder dies.

As you would expect the life settlement fund pays a lower amount for the policy than the death benefit. In theory everyone wins: The policyholder receives money when they need it and the investor has the potential to profit from the transaction.

Before deciding how much to pay for the policy, the life settlement fund assesses the life expectancy of the policyholder through medical underwriting. Life settlement funds invest in a large number of these policies and investors buy into a share of the profits on these transactions.

http://www.h-l.co.uk/news/feature-articles/life-settlements--good,-bad-or-ugly

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Reading the rest of the article I don’t know what to think to be honest, while the face of it sounds like a noble action, giving terminally ill people the cash they need in their final months, chip away at the veneer and basically it’s profiting from a person death. For me anyways, it’s an ethically grey area, I doubt if the life settlement will be giving a fair deal and it’s rob relatives of any money they might need.

Besides this, as the article explains there is no guarantee that money will be made, it could be easy for the ill to shaft the settlement company, how I don’t know but I’d probably look for a way at least!