Washington Post Reports on Life Settlement Investment "Traps"
The Washington Post ran this story today that warned of the risks in life settlement investments, such as those sold by A&O Life Funds. The article states:
The latest growing exotic investment promotion is in what are called "life settlements" or "senior settlements" or "viatical settlements." They're ghoulish products by any name.
Although they can be marketed and sold legally, the products are so complex and opaque that they are prone to fraud, including: Ponzi schemes; phony life expectancy evaluations; inadequate premium reserves that increase investor costs; and false promises of large profits with minimal risk, according to the North American Securities Administrators Association, which represents state securities regulators.
Life settlements made it to the association's most recent list of the top 10 investor traps.
If you're an individual investor and you've received a pitch to invest in life settlements, there's much to beware. Head and Leimberg said life settlements are not appropriate for individual investors.
"It's pretty darn speculative if you are going to be able to collect on that individual policy," Head said.
Leimberg added that only highly sophisticated investment groups such as hedge funds or pension funds should be buying this investment product.
The problem, he said, is the insured may live longer than expected, significantly reducing investors' expected returns. And the person could live so long that investors are left having to pay the insurance premiums for years just to maintain the policy.
Click the link above to read the entire article.
