In working with investors we are regularly asked to review portfolios. Buying life settlements requires extensive due diligence but often when you are first presented with a portfolio you can spot some red flags. Now these red flags don’t mean that you have a bad portfolio or that you should go running for the hills. Quite the contrary in my opinion if you are expert enough in your ability to do the due diligence required this might be exactly where you will find the best deals. But this is definitely an area of life settlement investing to keep your wits about you.

We were asked to help a client recently and as normal the first look at this $500M portfolio was a spreadsheet.

Red Flag 1: Who owns the portfolio? And more importantly are you talking to them directly? The fact is that spreadsheets are passed around this industry like dinner rolls. Long broker chains will kill any chance of a deal.

Red Flag 2: All policies are 2-3 years old. That means this is likely a BI portfolio or financed, so buyer beware of STOLI.

Red Flag 3: These recently issued at Preferred rates and new LE’s are now all short. Sure declines in health happen but if you are looking at a few dozen policies with that fact pattern in the same portfolio statistics would say something is awry.

Red Flag 4: Lots of insurance on single lives. It goes without saying that concentrating in relatively few lives is a risky proposition. But also when one portfolio has been assembled this way it should call into question the sellers motives and caliber of origination.

Red Flag 5: The Brooklyn specials. The simple fact is that there has been a good deal of questionable inventory originated in the NE area and a concentration from there is cause to increase scrutiny.

There are plenty of life settlement portfolios that have one or all of these flags. If you have the ability to do the due diligence necessary it could be a great opportunity to pick up some very discounted life settlement inventory.

Red Flag 4:

Well this is court room drama good enough for TV  and you know life settlements are main stream when you hit front page of the journal. With $56 Million on the line this is hardly representative of the average life settlement case but its interesting to note what can happen when life settlements go bad.

A well known attorney Arthur Kramer died at age 81. In the previous 8 years he took out and sold $56M of life insurance. The family is suing saying the insurance was fraudulently obtained and so the investor who bought the policies should not get the death benefit…the family should. Now does that strike anyone else as having some logical issues? Putting aside the issue of whether the policies were actually fraudulently obtained lets conjecture that they were. If the policies were fraud…why should anyone be paid? They are basically accusing the late Mr Kramer of fraud and then saying but we’d still like to keep the money.

Life settlements are a great financial option. If you own a policy why shouldnt you have the right to sell it and once that transaction is done you dont get to go back on it. If you committ fraud putting policies in-force then those policies are void and dont pay out. Insurable interest is the key concept at issue. Rather than get into that right now, I’ll let you read this case and mull it over.

When you retired you learned about all of the benefits that accompany being a senior.  As a member of the Golden Years community, you have access to discounts that others wish for.  One benefit that makes the rest of the population envious is an alternative investment, Life Settlements.  With Life Settlements, you are able to get  cash from an insurance policy that you already have.  The money you paid into your policy was meant to benefit your family, but if you have a need for cash now or simply no longer wish to pay the expensive premiums this could be a very profitable solution.  Life Settlements do not require you to divulge the reason you need the money. A life insurance policy is your property and like real estate, stocks or any other asset you own you have the absolute right to sell it, no questions asked.