The Secret of Life Settlement Investing

Jerry Fetta
7 min readMay 12, 2024

Today I want to share some education on a really cool asset class that many investors are not aware of.

It is called Life Settlement Investing.

Now, you may be familiar already with life insurance where a person pays a monthly premium to a life insurance company and in return, that life insurance company pays a death benefit to the loved ones of that person when they pass away.

Well, some of these life insurance policies are called cash value policies, meaning that a portion of that monthly premium goes into a savings component of the insurance policy and builds up a cash value that can used to pay premiums, be borrowed against, or even payout to the owner of the policy for them to use.

Life Settlements fall into this category of cash value life insurance policies.

Basically, with a cash value policy there are 4 main parties to know about:

1. The owner who pays the premiums and can take loans, distributions, change the beneficiaries, etc.

2. The insured, which is simply the person whose life is being covered by the policy and when they pass away, triggers the payout of the death benefit.

3. The beneficiary, which is the person who will receive the death benefit.

4. The insurer, who offers the insurance policy, collects the premiums, and pays out the death benefit when it’s time.

Often the owner and the insured are the same person, but that isn’t always the case and it isn’t required to be that way.

Okay now that we know who the players are, let’s talk about how life settlements work.

Let’s say there is an older woman who bought life insurance in her 30’s because she had a family she wanted to protect and she wanted to save some money for retirement. But now she is in her 70’s and unfortunately, because she was not sold a Sacred Account (specially designed type of life insurance for wealth building) her life insurance policy cash value has not met her expectations. She pays a premium she cannot afford anymore and her cash value is not enough to retire on or do anything substantial with.

Unfortunately, she only has 3 options ordinarily.

First, she can take a loan against her policy cash value and use it for retirement, home repairs, medical expenses or whatever she has going on. Let’s say she has built up $50,000 in cash value over the years. The problem here is she will still have to pay the premiums and now in addition to that she will have to pay interest on her policy loan. This option isn’t financially affordable for her.

Second, she can cancel her policy and just take the cash. She won’t have premiums anymore and she won’t pay interest and the insurance company will give her the $50,000 she has built up. But also, this means she paid for insurance for all these years that basically goes to waste since cancelling means her beneficiaries won’t receive a death benefit.

Third, she can pay her premiums from her cash value and leave the policy alone. This will help her save on out of pocket premium costs, but she will basically be paying her premiums with a cash value loan, which would mean she probably will also incur interest charges for borrowing and her cash value will quickly cannibalize and when it runs out, the insurance company will cancel her policy anyways because she can’t afford the premiums and there is no cash value left.

Scenarios like this are the reason life insurance has gotten a bad name. Salesmen push life insurance policies like this on good-intention families who don’t know any better and decades later the family realizes their insurance policy doesn’t do what they were told it would do and they really don’t have any good options.

Well, Life Settlement Investing is a fourth option that provides a lot of help to the policy owner and offers an investment opportunity for an investor as well.

An investor can simply buy the policy from this person. This means the investor makes a payment to the policy owner that is often 4x larger than the current cash value. This means the policy owner gets 400% more money for their policy versus cancelling it and having the insurance company give them their cash value. In our example, this old woman would receive $200,000 instead of $50,000.

The investor now becomes the owner, which means they take over the premium payments and they are in charge of who the beneficiaries are. As part of the transaction, the investor changes their name to the beneficiary so that when the old owner, who is still the insured, passes away, the investor receives the death benefit.

As you can see, this is a pretty big win for the person who sold their policy because they have 4x more money to use in life, they no longer have the burden of premium payments, and they don’t need to worry about loan interest.

And for the investor, he gets a pretty good deal too!

Life settlements are a non-correlating asset which means they are not based on any market, economic condition, interests rates, political factor, or anything else. They are based on 2 things. First, the solvency of the insurance company who is on the hook to pay the death benefit. Second, the lifespan of the insured. That’s it.

When you work with the right team as an investor, you can have a great deal of knowledge and control over selecting policies that are with companies who have long track records of paying out death benefits as agreed and can prove good financial solvency and you can also have the seller of the policy undergo medical exams and get a life expectancy report from a doctor before you purchase their policy.

The investor simply pays the premiums and loan interest until the insured passes away and then receives the death benefit at that time.

Most life settlements are an 8–11% average annual payout when you consider the premium and interest costs, how long those are paid by the investor, and what the death benefit lump sum is. The cool thing is, you know what your total return will be from day 1 because you know how much you paid, how much the premiums and interest will be, and how much the death benefit payout will be. The only thing you don’t know is exactly how long the insured will live, but with the life expectancy report you can get a pretty close idea.

You make a 70% profit on your initial investment over 6 years, which comes out to around 12%.

You’re going to make 70% total either way so the only real variable is time.

You may also make that 70% in 3 years if the insured’s lifespan is shorter, which is around a 23% annual return.

Or you may make a 70% return in 12 years because the insured lives longer and now you’re closer to a 6% annual return.

Until recently, life settlement investments were only available to the largest institutional investors. In fact, two of the largest life settlement investors are Warren Buffett and Bill Gates.

However, in recent years, life settlement investing has opened up to Accredited Investors through private funds. This means you can buy shares in a private fund (which is basically a business) that is in the business of buying life settlements. If you’re investing this way you want to make sure you understand not only life settlements, but the fund/business you are investing in, who runs it, and how it is run. That adds an extra layer of risk.

Life settlements can be a great way to secure stable returns that aren’t dependent on the stock market, interest rates, Elon Musk’s twitter feed, or any other factor. It is a nice asset to have in your portfolio.

They are certainly not risk free and keep in mind, if you are doing it through a private fund, about 70% of private funds fail, so you want to make sure you do business with the 30% that don’t.

Since this article is about an investment/security, I want to make sure you know that this is not investment advice, this is not an offer to invest, and that any investments you do make are at your own risk with your own due diligence. But I hope this article has enlightened you on another cool investment option that’s out there!

In closing, my mission in life is to help good people build more wealth who make the world a better place.

If you’re a client of mine and you’d like help leveling up, send an email to my team with “Level Up” in the subject line to Contact@WealthDynamX.com.

If you’re a follower and have not read my book The Blueprint to Financial Freedom yet, that is the place to start. This book covers the specifics for each level in the various chapters and you can grab the book for free as my gift.

Click here to get a copy!

The Blueprint to Financial Freedom by Jerry Fetta

To Purpose, Wealth & Freedom,

Jerry Fetta

Jerry Fetta is the CEO and Founder of Wealth DynamX. He is a nationally recognized financial expert featured in Forbes, Yahoo Finance, Fox, Chicago Weekly News, New York Finance, interviewed on 100+ podcasts with world renowned experts, earning endorsements and affiliations throughout his career with names like Kevin O’Leary, Grant Cardone, Dave Ramsey, and Pamela Yellen.

Jerry’s mission in life is to help create millions of financially educated and solvent families achieving greater financial freedom and sharing the truth about money with those around them.

Learn more at www.WealthDynamX.com

(DISCLAIMER: The information in this content should not be considered tax, financial, investment, or any kind of professional advice. Only a professional diagnosis of your specific situation can determine which strategies are appropriate for your needs. Wealth DynamX can and does not provide advice unless/until engaged by you.)

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Jerry Fetta

Jerry Fetta is the CEO and Founder of Wealth DynamX. Jerry’s mission in life is to help create millions of financially educated and wealthy families.