We felt it was worth spending some blog time to answer this common question – and it can be answered with one word:  Diversification.

When an investor is offering to purchase a policy, they are adding it to their portfolio of existing policies.  The more they own – the more likely they are to have a portfolio that behaves on average as they would expect.  If they plan on paying premiums for policies for 120 months, and they buy one policy – what happens if that policy ends up requiring premium payments for 360 months or more?  The investor loses big time.  But when the investor buy pools of policies, or continues to add policies to the portfolio – the individual performance of 1 policy will not affect the investment as significantly.

To put it in perspective, to have a diversified portfolio of insurance policies, it is estimated institutional investors need 200+ policies.  By holding on to a single under-performing or unwanted policy – the policyholder or beneficiaries are essentially deciding at that point to invest without diversification.

For other answers to common questions – check out our life settlement FAQs page.