It may sound morbid, but “funds that invest in the life-insurance policies of ill or elderly people are producing average annual returns of some 10%”, writes Jennifer Hill in The Sunday Times. That’s enough to make anyone forget squeamishness and take a closer look. Worth more than $13bn, the traded life policy or ‘death futures’ market is expected to grow to $160bn in the next few years, reports the Pensions Institute this month.
Here’s how it works. Insurance policy-holders in America who need to raise money sell up unwanted life insurance policies to investment funds for a lump sum. The fund continues to pay the outstanding premiums and, when the policyholder dies, they get the full payout. There are potential ethical issues; the industry is not fully regulated in America, leading to the possibility of policyholders being ripped off by unscrupulous buyers. But as long as the policyholder is fully aware of what they are getting involved in, the report says that there should be no particular ethical qualms; these funds can give someone who needs to access money in their old age a valid means of doing so.
Whether they’re worth investing in is another matter. There are real risks, as the Pensions Institute report points out. If the policyholder lives longer than expected (and with longevity increasing all the time, that’s a genuine possibility), there’s the risk that the cost of buying the policy plus premiums will be greater than expected, hurting the final payout. So far returns have been solid, but that’s no guarantee this will continue. If you do plan to invest, then it should be a small portion of your portfolio, no more than 5%. Given the high minimum investment levels, this will close off this option to many investors.
If you’re still interested, Australia’s Life Settlements Wholesale Fund buys policies of those aged over 65 with a life expectancy of ten years or less, while the Guernsey-domiciled EEA Life Settlements Fund (020-7553 2350) buys policies of those with a life expectancy of two years or less. Both funds can be bought through an independent financial adviser. The minimum investment on the Life Settlements Fund is AUS$30,000 (just under £15,000), while for EEA it is £25,000.
Green investors may be interested in the New Earth Solutions Recycling Fund, launched this week. Targeting a 12%-15% annual return, it invests in facilities owned by waste-management firm New Earth Solutions (NES), which has contracts with councils including Kent and Bristol. The firm owns a plant at Canford Park in Dorset, which can process 50,000 tonnes of municipal waste, and will use the investment to develop this and other sites. The minimum investment is £10,000; contact 01624-699677.