MALEVOLENT OR BENEVOLENT?
As thoughts turn towards the ghostly goings on that brings October a close, this is perhaps the perfect time to talk about a relatively new investment scheme that may seem rather ghoulish.
Life Settlement Funds are common in America and are regarded as ‘ethical’ investments. In a nutshell, they profit from death, which tends to make British investors uncomfortable, but when you learn more about the process, it becomes clear they are not as macabre as they first seem.
We purchase life insurance to provide for our loved ones should anything happen to us. But once we reach old age, our children can usually fend for themselves and the premiums become a burden, which is why many elderly people surrender their policies for a fraction of their value.
In America, if your life expectancy is less than four years, you can sell your insurance to a Life Settlement Fund, who will give you a much larger cash lump sum than the insurance company. In return, they take over your premiums and benefit from the settlement when you die.
Most of these funds own a few hundred policies and even though they assume life expectancy is a year longer than anticipated, they increase returns to the investor monthly, to reflect the fact that their insured are a month closer to dying.
The people who source policies for Life Settlement Funds are paid on performance and only earn their fee if the fund makes a return of 8% a year – historically it has been nearer 9-10%. Returns are subject to capital gains tax in the UK, but this means that for the majority of investors, it will form part of their tax-free allowance.
What worries us at Campbell Harrison is that we can’t find a downside to these funds! For a lower-risk investor, who is nervous of the stock market, Life Settlement Funds are the perfect tool to underpin a varied portfolio and whilst you may be profiting from death, you are providing financial security to the terminally ill.
As always, seek professional advice.
If you would like advice on financial affairs please contact:
Retirement and Investment Planning
19 Paradise Square, Sheffield S1 2DE
Tel: 0114 272 3994 Fax: 0114 272 3775
Authorised and regulated by the Financial Services Authority
*This article is not intended to address your particular requirement and should not be relied upon in making any decision.
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