LIFE SETTLEMENT (DFU formula for acquiring property at half price....really)

DEFINITION OF 'LIFE SETTLEMENT' The selling of one's life insurance policy to a third party for a one time cash payment. The purchaser then becomes the beneficiary of the policy and begins paying the premiums. Typically the purchaser is an experienced institutional investor, and policies will have face amounts in excess of $250,000.

INVESTOPEDIA EXPLAINS 'LIFE SETTLEMENT' Life settlements are usually only done when the insured person doesn't have a known life-threatening illness. They are often done with "key individual" insurance policies held by companies on executives who no longer work there; the company has a chance to cash out on a policy that was previously illiquid.

Sometimes people outgrow their need for a specific life insurance policy, and a life settlement may offer the chance to gain more than the policy's cash surrender value. +++++++++++++++++++++++++++++++++++++++++++++ end

Okay, folks, here is how to benefit in the real estate market. I will explain one of the transactions on which I am currently working.

PROPERTY: +/- 76 acre plantation in the South. Has 5800 sq ft house, large log cabin house, and several out buildings. It is an amazing property.

DEBT: free and clear (free and clear or low debt is necessary to make the formula work)

SELLER MOTIVATION: is currently developing out of the country. This property is excess inventory, which is providing no benefits and is costing money to own. Seller does not need the cash from the transaction.

1) Seller has been offered two $1 million Life Settlement Policies (LSPs). Per doctor reports and health history, the indicated life expectancy of the person (in his late 70s) is approximately 84 months. The premium is about 4% per year.

2) Through the guru of this industry, where I help clients find LSPs at the best discounted purchase (about 20-22 cents on the dollar), we offer the policies for review and approval of seller. Obviously, we are very careful redacting the information released so as not to violate privacy laws.

3) My client is paying for the appraisal of the plantation and, after discussing with an appraiser, we expect the value to come in near the asking price. In 2008, two years after the crash began, it appraised for 2.6 mil.

4) If the appraisal is satisfactory and the policies are approved, will will complete the transaction within about 60 days. Much of the time is down time as we await the insurance company to complete the paperwork for the transfer of the beneficial interest.

5) At closing, the buyer will turn over a suitcase full of cash (only an expression, but real in the world of the Clintons) to cover the premiums for the 7-year life expectancy = $560,000. If the seller has other assets to make premium payments, he can use that 560K to make a real estate deal, solve problems, or for whatever he wishes. The insured may die earlier than 7 years or later. If later, the seller of the property has to be prepared to make extra premiums. If earlier, he has extra money left over from the savings of premium payments. NOTE: the first policy bought by my best client had a life expectancy of 5 years. She died in 9 months and he turned in an initial 210K purchase of the million dollar policy and and 25K premium into one million dollars.

So what has each party received? The seller has gotten his price and receives an asset that will absolutely pay off in cash at some future date. No worries about keeping up the property, taxes, insurance, or damages from nature's wrath. The seller has, of course, given up potential interest on the money. He can evaluate the effect on his investment portfolio and decide whether the deal was worth it to not take a discount on his asking price. If he would have had to discount it to get cash at about 1.5 mil, the benefits of the LSP 2 million payoff can be evaluated against the potential interest lost. The buyer has acquired the property for the investment of 400K for the purchase of two million dollar policies plus 560K at closing for the premiums. He has gotten the plantation at half price and is free to keep it for the benefits it may provide or is in a position to substantially discount it and still make several hundred thousand dollars.

Life insurance companies that may have solvency problems cannot go bankrupt. The state will take over, if necessary, until another company takes on the assets and liabilities. The policies in which I have been involved are with the top rated companies.

Along with many other business interests in which I have been involved, including co-producing HILLARY! UNCENSORED, I have been a California real estate licensee since 1977. My specialty has been creative exchanging, consulting, and problem solving. At the college level for 10 years I taught RE Law, Econ, Practice, and Principles.

Fire away with questions even if not about LSPs. Maybe I can help solve your real estate problem. :)

I began working with LSPs about four years ago. Here is a theoretical example of using it as an investment vehicle. We cherry pick policies for 5-8 year life expectancies and would like to get premiums at about 3% if possible. Typical age would be in late 70s with numerous health issues.

DEATH BENEFIT: $1,000,000
ANNUAL PREMIUM: $40,000
PURCHASE AMOUNT: $200,000
LIFE EXPECTANCY: 6 years

If the insured lives for the 6 years, an investor has put in an initial $200,000 and spent $40,000 per year for premiums. That total of $440,000 turns into $1,000,000 at maturity. Even if the life expectancy is exceeded, the return on the investment is substantial.

I have thought about pooling investors together to acquire these and have a meeting with a major player who manages pension funds. For someone not needing the money for awhile, this investment can be a very lucrative part of a retirement investment portfolio.

So I’ve been thinking about these.

If you were to pool them, and sell them, are they annuities? Or are they life policies, i.e. do you become an insurer? Are they governed by SEC rules as investments? LLC’s?

If these questions are too personal, please say so; my curiosity is less about your position than about the mechanism. Thanks!

Do not know the answers. But whatever I do, I hope to not ever suffer the wrath of the SEC.

These would be existing life policies with perhaps 2 to several more people owning a piece.

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