Empirical data continues to show how life settlements have averaged superior returns while keeping principal safe.
The AAP Life Settlement Index
The AAP Life Settlement Index tracks the performance of funds implementing an investment strategy in U.S. life insurance policies (“life settlements”) and serves as a transparent benchmark for the overall life settlement market. The Index allows investors to run performance comparisons and analysis of life settlements to other asset classes, such as stocks, bonds and hedge funds.
As can be seen by the above chart, as of February 2009, “the S&P [fell] 53% from its October 2007 peak and has now seen its worst six-month drop in percentage terms — 42.7% — since 1932, when it dropped 45.44% in the six months ending in June.”
– The Wall Street Journal, Brutal February for Blue Chips, March 1, 2009.
Like investors who lost fortunes during the Great Depression, investors who had all of their money in the S&P 500 would have lost nearly one-half of their principal in February 2009.
During the most recent economic crisis, life settlements performed well against other indices, including the S&P 500 equity index, Credit Suisse’s Hedge Fund and U.S. Bonds. With no correlation to other markets, life settlements can act as a defensive strategy to reduce the overall volatility of an investor’s portfolio.
Perhaps this is why institutional investors have invested billions into life settlements.
According to an 11-year study by The London School of Business, investors purchasing their sample of life settlements could have expected to earn an average cost-weighted internal rate of return of 12.5% per year.