Has anyone here read or done any work related to life settlements/beneficial interest deals on life insurance policies? Definitely seems like an emerging industry that could be extremely lucrative. Any input on the subject?
I'm the trustee for an irrevocable life insurance trust. I looked into the possibility of selling the policy (since there was some question of canceling the policy and investing the cash value elsewhere), but the quotes received were just under the accumulated policy cash value, given the (relatively) good health of the insured couple.
I've heard that investors/companies that buy the policies look for/price in an average return of 10%+ (+/-), assuming an average life expectancy, in order to make it worthwhile to buy the policy.
As far as approaching it as an investor, there's no way in hell I'd even consider it unless you had a chance at a good return (due to lack of diversifying risk...given the initial up-front investment require to buy out a sizable policy, all it would take is just one policy to pay out later than expected to really drive down your returns).
Also, as an individual, you're far more exposed to the inability to average out policy values. For instance, you could have a couple in their 60s with a policy face value of $5MM, and an individual male in his 70s with a policy face value of $1MM. Not only is it difficult to 'hedge' or average out the time you would have to wait to collect on the policy (given peoples' ages), but the policy amounts would likely be considerably different to the point of having difficultly managing or averaging out your cash flow.
I don't know of any opportunities (either publicly-traded, or investment opportunities available to the public) for this market. Usually, by the time its available to the retail market (usually through late-night and Saturday/Sunday afternoon infomercials and brokers advertising it to draw in new clients), the market would be saturated to the point of driving down expected yields.
The only area that an investor could have substantial consistent yields would be the terminally ill people that either have plenty to leave their heirs, or have no heirs whatsoever, and want to cash in to 'enjoy the money while they can'. To them, taking 90% (or much less) of the face value wouldn't be a big deal, as they would rather spend 80% of their policy's face value than let someone else enjoy the money.