How Life Settlements should be set up...

How Life Settlements should be setup...
I follow the news about Life Settlements and find that the information from the so called "experts" can be very confusing to someone who is considering this asset class as a way to rebuild their portfolio. What I will try to do is break down what I looked for when I started looking into this as an investment for my family. I come from an oil and gas development, investment banking and broker dealer background so I am a deal guy. But when you make an investment complicated I get nervous, like a derivative for instance, I shake in my shoes. Just keep it simple because I am not that good at math, I understand 1+1=2. I understand 1/3 for a 1/4 oil deals and I understand that if I loose control of where my investment dollar goes I have a higher than average chance of loosing my money. That being said I will talk about a company here in Texas that defrauded a number of investors and break down how they had their investment vehicle setup.

The company was A&O Life Fund out of Houston, how they set their products up from what I see in the SEC filings is their pitch was they could potentially guarantee the investment because it was set up hedge fund model that pooled investor money to purchase interests in life policies. A&O contracted out the bonding of the investments to Provident Capital Indemnity, a company based in Costa Rica to pay if the investments did not perform.
So here are what I see that would have made me nervous:

1. Any type of guarantee on investment makes me run,
2. Pooling of funds not setup through a public entity or is unregulated, makes me run.
3. Pooling of life settlements should reduce risk if done properly but also reduces ROI, I personally like looking at the policies I invest in prior to investing.
4. Investor looses control of the investment because he is not sure what policies his money is invested, what type of policies, what insurance company issued them or the ratings for that insurance company, this makes me run.
5. Using a bonding company from outside the US, makes me run.
6. Dealing with a company that is not public and has no real track record, makes me run.

Here is why I like LPHI for my Life Settlement investments:

1. My investments dollar goes from my self directed IRA, ROTH, 401K or cash account to my escrow account where it stays to make premium payments on the policies I purchase.
2. I am diversified in maturity expectancy, insurance company, insurance company ratings (although the are all legal reserve), investment amount and policy face values.
3. I have a physical ownership of each policy I am invested in from the issuing insurance company.
4. LPHI could go out of business tomorrow but my policies with stay in force because of the escrowed premiums handled by an 83 year old third party law firm.

All the pitfalls have been looked at over the 18 years that LPI has been doing life settlements, they have seen what other companies have done and corrected anything that could be scrutinized to bring the best possible product to the investor.The actuarial side of LPI is the best in the business, they filter age of maturities, physical health, genealogy and medical background then get a third party evaluation for life expectancy. This is all done before I even see a policy to invest in.

I hope this helps you understand how to invest in life settlements, personally I think it is the best kept secret in the investing world. If you have any questions feel free to contact me.

Darren Quigley
512-406-1364
darren@dquigley.com
(twitter) @outofthemarket