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Life Settlement Investments / viatical

 
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Wakebrad
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PostPosted: Aug 02, 2006 12:15 pm    Post subject: Life Settlement Investments / viatical Reply with quote

My wife and I just met with a financial advisor today and one of the options for investing was this Life Settlement. Anyone have thoughts on this? It would be nice to have something stable if the market drops but I worry about fraud. We're both young and make good salaries and aren't planning to put a ton of money into it. I think like $21k divided into 3 accounts. Still tentative plans but I wanted to get a feeling for other opinions.

For those who don't know what it is (I didn't):
http://www.bankrate.com/brm/news/investing/20010717a.asp

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5280HighButter
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PostPosted: Aug 02, 2006 1:52 pm    Post subject: Reply with quote

Wow, what happened to the old Roth IRA kind of investing. This is creepy, that is all I can say about it. There is a section that talks about who the right kind of investor is, make sure you fit. I personally would pass from an investment perspective (completely ignoring the fact that you gamble on life). I don't like how your money is tied up for an unspecified time period with an unspecified rate of return. Having my money tied up for 5+ years at 5% would kill me (pun intended). I would always advise people to research what they put their money into, whether that be a mutual fund, car, or weight lifting supplement. Do you know anything about investing in this stuff, cause it sounds like you have to do a lot of research yourself? If not, you are in for a large learning curve. If you could get 50-100% returns I'd say check it out, but for something like 10-25%, stick with more conventional securities.
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chavez
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PostPosted: Aug 02, 2006 2:20 pm    Post subject: Reply with quote

Wakebrad, I am not a fan. Well, I am not a fan unless you are the one SELLING your life insurance policy IF your family/heirs do not need the $$$ from the policy.

We have assisted a few folks in this position.

What you don't usually know about before you buy is the sucking sound caused by the life insurance policy bleeding itself dry as it pays the premiums out of the accumulated cash value. So, you pay XX dollars for a policy with a face value of XX. The policy pays the premiums out of it's accumulated value until that accumulated value is gone. Then, it slowly chips away at the face value until the person kicks the bucket.

So, a viatical can be profitable if the person dies quickly. If they live for a while, you may get a whole lot less that you bargained for. In fact, you may be able to beat a viatical if you just invest in fixed instruments for the same time frame. It is all a big gamble on when the insured kicks the bucket. Pretty morbid sh*t if you ask me.

**IMPORTANT**
Please note that this type of "investment" is NOT permissible within an IRA. DO NOT LET YOUR "ADVISOR" TELL YOU OTHERWISE. Life insurance is a prohibited investment - and a viatical is life insurance (just not on your life) - and will wreak havoc with your taxes when the IRS does catch up (they will).

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Wakebrad
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PostPosted: Aug 03, 2006 6:06 am    Post subject: Reply with quote

Quote:

Pretty morbid sh*t if you ask me.

Agreed. Although that part doesn't bother me much.

But if the market tanks this is a much more stable investment. These people are going to die. It's like a whole new kind of gambling. I supposed it depends a lot on the company you go through and making sure the case is legit. According to the advisor 50% of the people die before the estimation. I'm going to do some more research. We meet the qualifications for the "right people" in that article.

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chavez
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PostPosted: Aug 03, 2006 6:56 am    Post subject: Reply with quote

Quote:
According to the advisor 50% of the people die before the estimation.


Wakebrad, given those odds, I would probably take my chances on the Pass Line at the Craps table. That's just me though.

If you want a "much more" stable investment, buy a CD or just park your money in a money market account. MM accounts are closing in on 5% right now, no strings attached.

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PostPosted: Aug 04, 2006 4:45 am    Post subject: Reply with quote

Morbid...sure, i mean you are hoping to make money off someone's death, but you have to realize that the people selling the policy probably did it b/c they wanted to enjoy the money while they were still alive.

If I had set my family up well to survive once I was gone, I can't say that I wouldn't cash out the policy to take them somewhere nice where we could all be together, etc. But then again, if I had set my family up well, then I wouldn't need to be cashing out a policy to take them somewhere nice!

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Wakebrad
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PostPosted: Aug 04, 2006 6:02 am    Post subject: Reply with quote

Quote:

Morbid...sure, i mean you are hoping to make money off someone's death, but you have to realize that the people selling the policy probably did it b/c they wanted to enjoy the money while they were still alive.

It definitely helps the person. So the actual investing is IMO a good thing. The bad thing is I hope this guy dies faster so I get better return on my money. Shocked

chavez, well, the risk is very low on these things and the upside is pretty big. Not quite like craps. If they die at the estimation depending on the term you'll make around 20%. They die before you could make 50-100%. They die later and you make 5%. We'll see how the numbers play out. Do you have any personal experience with them?

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chavez
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PostPosted: Aug 04, 2006 7:11 am    Post subject: Reply with quote

Wakebrad, you've got to look at it on an annualized basis. If you make 50%, and it takes XX years to realize, what have you really made?

Just for sh*ts and giggles:
    20 years? 2.05%
    10 years? 4.14%
    5 years? 8.44%


Neutral

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5280HighButter
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PostPosted: Aug 04, 2006 7:16 am    Post subject: Reply with quote

Say you invest $100,000 on a policy. If the policy expires really early you could make 100% return. There are probably a few people out there that would "help" the policy expire early to make that kind of money. Does the SEC regulate this market, if so they are gonna have a fun time with things like this.
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Wakebrad
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PostPosted: Aug 07, 2006 7:22 am    Post subject: Reply with quote

chavez, well, the life expectancy is around 3-4 years and is amortized at about 20% per year. If they die in 2 years you could make 40-50% on your money. If they die tomorrow you could make 100%. If they die in 8 years you're down at 10%.

At least that's the way the advisor explained it. If we decide to go with that guy we will investigate the details further. We have a meeting with another guy in about an hour.

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chavez
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PostPosted: Aug 07, 2006 10:34 am    Post subject: Reply with quote

Wakebrad, 8 years could equal 10% IF you made 100% total return.

The viaticals I have seen clients bring in (3 that I know of & we did not sell them) have not paid off. They are all 10+ years into the contracts and are now operating at a loss.

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Wakebrad
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PostPosted: Aug 07, 2006 11:08 am    Post subject: Reply with quote

Quote:

Wakebrad, 8 years could equal 10% IF you made 100% total return.

Those were roughly the numbers we were working with. From the examples we saw anyway. Around 100% payout with a life expectancy of 4 years. It looked like you had to judge them on a case by case basis. I wonder if the guys invested in HIV cases and with advancing medicine you are now able to live a lot longer. That is always a risk. Say you invest in someone who is dying of cancer and then they cure cancer you're screwed.

But thanks for the anecdotal evidence. That's the kind of thing I was looking for.

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