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What are the Pros and Cons of Life Settlements Investments?

“Uncorrelated alternative investment with low volatility and predictable returns.”
Life Settlements primealpha.com

The Pros of investing in Life Settlements:


Uncorrelated Returns: Life Settlements provide a return and potential cash flow in an alternative asset class that is not correlated to stocks, bonds, currencies, interest rates, etc. - a risk that is not correlated with other markets because the value of an investment in life settlements depends on life expectancies of the policyholders. When insureds pass before the underwritten life expectancy, investors make a greater-than-expected return; if insureds outlive life expectancy, investors make less than expected.

  • Low Volatility: Volatility in life settlements is impacted by the size of the policy, pricing, life expectancy, premium schedule, and specific policy features – not traditional macroeconomic factors. The most significant factors are the size of the policy and the accuracy of life expectancy estimates. Therefore, because the underlying assets of a life settlement investment fund are life insurance contracts and life expectancy is generally a more stable rate than others, the fund has lower volatility compared to other financial markets.

  • Diversification: Due to the uncorrelated returns as an alternative asset class, life settlements diversify investors’ portfolios, reducing beta.


The Cons of investing in Life Settlements:

  • Long Holding Period: Since life settlements have a typical holding period of 5-7 years, investments in life settlements have a higher-than-average lock-up period relative to more traditional asset classes. Investors need to consider a long-term plan when making such investments.

  • The bias of Life Expectancy Estimates: Historically, life expectancy estimates have generally been too short, reducing expected returns on an absolute and relative basis. Improvements in the market and investor-specific practices have generally improved the accuracy of life expectancy estimates over the last few years.

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Special Thanks to our Contributor

RiverRock Logo

RiverRock is a dedicated life settlements investment manager with over ten years of experience managing pooled investment funds investing in the secondary and tertiary markets for life insurance policies.


Hugh P. Tawney Director of Sales Office: +1 713.375.1307 Mobile: +1 410.952.2374 htawney@riverrockfunds.com


RiverRock is not affiliated with and does not endorse PrimeAlpha Insights.

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