Returns on Investment
It has been quoted by industry experts that life settlement portfolio returns are realizing 7 to 11% annually. It has been our experience that most investors coming into the life settlement business are seeking returns of 8% to 14% IRR. These returns are possible with a carefully prepared plan for purchasing and maintaining your portfolio.
As with most financial markets, the price an investor pays for a particular investment will change from time to time. This dynamic is a result of supply and demand, the supply of available capital and many other internal and external market conditions. The current market price of a life settlement will certainly have an impact on your investment return.
SGI is qualified with 20 years of market experience to monitor and react to these market conditions to ensure we attain your investment objectives.
Investment returns can vary. The combination of the premium, face value, prevailing interest rates and most significant, the life expectancy of the insured and purchase price will determine your investment return. The market is trading today, June 2018, from 11 to 16% annual return.
Important Factors that Affect Your Return on Investment
Premium
The cost the insurance carrier will charge to keep the policy in force. This premium will include the minimum cost of insurance and other fees to keep the policy active. Premiums are a major cost of maintaining a life policy. They can range from less than 1% of the face value of the policy to as much as 10% annually. Typically, the strategy is to keep the premium to a minimum to maximize your return. SGI will determine the minimum premium for you and explain alternatives.
Purchase price
The price you will pay the owner of the life policy. The price you pay will have a significant effect on the return of your investment. SGI will build a financial model to assist you in attaining your investment objectives and advise you of the desired purchase price for a particular life policy.
Life expectancy
Most significant to the outcome of your investment return. Life expectancy refers to the life span of the insured. SGI will secure the medical records of the insured and have them evaluated by one or more licensed medical life expectancy companies to determine the estimated life expectancy. The insured may live longer or shorter than the projected life expectancy. If the insured should live longer your investment return will diminish. If the insured does not live as long as the projected life expectancy, your investment returns increase. There are ways to minimize this risk of uncertainty related to life expectancy and your SGI representative will be critical to you in this regard.
Face value
The total dollars that will be paid out upon the insured’s demise. For example, a life policy with a face value of one million dollars will pay one million dollars to the new beneficiary at maturity. As an investor, policies can be purchased with face values as small or as large as you wish. However, many of the costs associated with a life settlement transaction are the same regardless of the policy’s face value. There is a point where the life policy is too small to make a settlement economically feasible.