Ever wondered why someone would invest in life settlements? Let's break it down. This investment strategy stems from a historic decision in 1911, when a man in need of surgery traded his life insurance policy to his doctor. The insurance company initially contested the benefit claim, but the Supreme Court eventually ruled that life insurance contracts are personal property. This paved the way for life settlements as we know them today.
The Life Settlement Process
- An individual sells their life insurance policy:
- The seller no longer needs, wants, or can afford the policy.
- The policy is sold for more than its cash surrender value provided by the insurance company.
- Investors, such as BetterWealth, purchase these policies:
- They continue to make premium payments on the policy.
- Upon the individual's passing, the death benefit is collected.
- The death benefits are distributed among the investors in the fund.
BetterWealth's Journey with Life Settlements
For over 13 years, BetterWealth has been successfully involved in life settlement investments, purchasing approximately 1800 policies. They've created private equity funds, offering investors an asset class that is uncorrelated to the market.
Key Benefits of Investing in Life Settlements
- Win-win scenario for policyholders and investors:
- Policyholders receive a higher value for their death benefit compared to cashing out.
- Investors gain access to a unique asset class with potentially lower tax implications.
- Asset uncorrelated to the market:
- Provides diversification in an investment portfolio.
- Structured similar to real estate or business investments:
- Investors receive a payout upon the policyholder's passing, analogous to selling a property or business.
Conclusion
Life settlements offer a unique investment opportunity by transforming traditional life insurance policies into valuable assets. BetterWealth's experience and innovative approach have transformed this field, creating beneficial outcomes for all parties involved.
Full Transcript
What is the one-on-one behind why someone would invest in a life settlement and I'll let you break that down? Well, you know, if you go back to the beginning 1911 a gentleman needed a surgery and Didn't have the money and so when he met with his doctor he Consulted with his doctor and he said look. I don't have the money to do this But I do have a life insurance policy that's you know, there's death benefit there Would you take that for in trade even though there was no cash fire? And so the doctor decided he would take it and they did the surgery and A few years later several years later the gentleman passed and the physician Went to claim the death benefit on the life insurance The insurance company box and said no, you don't have it insurance in this and so you can't You can't be paid so of course litigation ensued and It went all the way to the supreme court and the supreme court This chief justice at the time Who wrote the opinion was Oliver Wendell Holmes and His comment was once you have passed the contestability period in a life insurance contract It becomes personal property and people can do with it as they choose That has been challenged many times and it has always been a pill so essentially what happens is we buy a life insurance policy from an Individual who no longer needs it wants it can afford it whatever the reason They sell it and then we give them money for the policy We always give them more than the cash value or for or more than what they would get from the insurance company Then we continue to make the premium payments and when the individual passes we collect the death benefit into our fund and It's distributed amongst the members of the fund. We've been doing this now for approximately 13 years We have purchased Roughly 1800 policies over that time We've never had a policy pay less than what we had anticipated we We put together a private equity fund Essentially, it's a pool of investors We originally did this for ourselves we We Both driven I had owned pieces of small policies and had good success with it and one day we were playing off and We both got a text from the company that we did this with and He got noticed Notification that he had received there's a death benefit that he was going to be getting And I got notification that my policy needed an additional premium payment And I said man wouldn't it be great if we could just pool these all together because I didn't get the time we owned about I don't know 15 or 20 of them and So we looked into Putting them into a pool that way we could it when one Had a victory we shared in the victory and when one there was a burden like a premium payment We shared in the burden it would smooth out the yield curve and so When we realized that we could do it we opened it up to some of our high-value clients that invested in the same asset class We opened it to to outside investors in fact my dad was our first investor And it went from there and After our first fund it was put together It became pretty obvious that this was going to be a beast We were financial planners at the time and It became well it became readily apparent that We were not going to have any time to do any financial planning anymore. So we we stepped back from that and And We started offering this to clients and then we had advisors who would come to us and say Can I refer some of my clients to you and we said we don't know So but we'll look into it and we did and and they can it's not a problem. So That's where it started and we are now on our 10th fund private equity fund And it's worked out beautifully from day one It's awesome. That's awesome. So to to simplify this there's a couple of people in this equation I actually have a good friend who's on the other side of Settlement so he's helping people that have their life insurance policies. He's helping them negotiate He's like a broker and so it's really cool I might have to have him on to talk about the different side to this Absolutely the whole the whole idea is your you're creating a win-win scenario with the the person that has a life insurance policy because at the end of the day They it's a free market they can do what they want and so instead of caching it out and getting whatever They're getting a higher Value for their death benefit and that's a point that I want to make real quick is when you set up life insurance a lot of times People only care about the cash value which I understand but the permanent death benefit is an asset and you guys are a perfect example of like You will die someday and so if you have an insurance policy that's that's gonna happen for an assure for a sure date Like that's that's incredible and so that that's is an asset that you guys ultimately You know that you as capitalized on but you have that asset and then so they you create a win-win scenario And I also want to say that a majority of these policies that you're probably buying are not the policies that we we design They're you know we can go into that if you want from a standpoint of the typical policies that you get but without you know These are not policies that are max funded from the very beginning with mine that they're their policies that people are getting maybe for an estate plan or Perfect there you go, you know, and so they're high death benefit low cash value And so that there there's a win-win relationship there So the person that you're working with they're getting more money They're assigning over the death benefit to the fund You're it's a win because this is an asset that's not correlated to the market and and you're saying hey Like we're gonna continue to make premium payments and when this person quote unquote matures passes away That death benefit is gonna get paid to the fund There's gonna be less tax bet benefits than if the death benefit went directly to the family But still we're getting a lump sum of money and you're saying if you're an owner of that fund You'll get passed you'll get paid out When that happens just like if you sold the real estate property or you sold a business in a in a fund Exactly. It's exactly true
