Investors looking to enhance their portfolios might consider buying into life settlements. Life settlements occur when a policyholder sells their life insurance policy to a third party for more than its surrender value. Settlement brokers purchase these policies and sell them to individual investors or institutions. Investors pay for the investment up-front and wait for the insured to die before receiving a return.
While these ventures may be profitable, they are volatile. Oftentimes sales pitches don’t paint the picture of how uncertain returns can be. Anyone considering investing in any opportunity should analyze the investment potential and risks involved. Always get the advice of a licensed and vetted financial advisor as well as doing your own research.
Beyond the Sales Pitch
Far too often sales representatives oversell the benefits of an investment while understating (or omitting) material facts. Sales agents may misrepresent the full terms of the investment, potential risks, and might not disclose key information that could affect the investor’s ability to fully scrutinize whether the offer is right. It is important that investors look beyond the sales pitch and know what they are getting into. That means the agreement needs to be read before signing.
For example, the now defunct company Reliant Life Shares LLC (RLS) came under fire with the Department of Financial Protection & Innovation (DFPI) for misleading investors in life settlement investments. The DFPI found that RLS lied to investors about their actual performance by making false statements about the risks involved. RLS told investors that the risk was close to zero and that 97 of policies pay out on time. That they could expect payouts in a few months or at max five years. RLS also used images and false statements in their materials, falsely inflating their past performance.
As a result, the agency ordered RLS to desist and refrain from offering or selling any security in California, including but not limited to fractionized investments in life settlement contracts. RLS entered into a settlement agreement with the DFPI in July 2023. For more information on the DFPI action and to read reviews and complaints filed against RLS visit the company’s BCA Report.
Typical Complaints for Life Settlement Investments
A common complaint from life settlement investors is undisclosed fees and payments. Because the insured’s life expectancy is unknown, investors can have their money tied up for several years. For example, one investor invested $300,000 with a life settlement company after being told that 97 of their policies mature on time. Years later the investor hadn’t collected anything. Rather, they were stuck paying additional premiums year after year.
In order to make an informed decision whether or not the investment is right for you, ask questions and get definitive answers to the following:
- What is the rate of return?
- How are the payouts structured?
- How are the policies valued?
- How are fees calculated?
- Who pays the taxes?
- Who tracks the health status of the insured?
- Under what circumstances can you withdraw your investment?
- What happens if there are issues with the payout?
- Is there any pending or past litigation or regulatory action against the company?
Before You Invest
Before agreeing to such risky ventures, determine if it’s really suitable for you. Consider your age, current financial status, and personal circumstances. Check to see if the investment offered is considered securities and if so how it’s regulated. Get the reputation of the business and principals of the company up-front by obtaining a report from Business Consumer Alliance and other sources. Check with the Federal Trade Commission, your local Attorney General’s office, and the office where the business is located for more information on the company.
You can also ask for references to speak with other investors about their experience. Read through the portfolios carefully to analyze various scenarios that may come up. Also, do some research on the policies and insurance companies issuing the policies to determine if they are reputable.
While life settlement investments may be profitable, you run the risk of losing your entire investment. Seek the guidance of a trusted and reliable financial advisor before agreeing to any investment offer. You can contact BCA if you run into problems or want to file a complaint.