Life settlement
Buying an existing life insurance policy from the insured for more than its surrender value, then paying the premiums and collecting the death benefit. Returns fall the longer the insured lives.
Where you will meet it
Life settlement appears in 2 learning outcomes on the CFA syllabus. A few of them:
- Discuss the ways hedge fund strategies can be grouped
“Specialist strategies need niche skills, such as volatility trading and reinsurance or life settlements.”
- Discuss specialist hedge fund strategies: their investment features, how they are put into practice and the role they play in a portfolio
“Reinsurance and life settlement strategies buy insurance risk: a life settlement fund buys policies from their holders, keeps paying premiums and collects the death benefit, so returns depend mainly on how long the insured lives rather than on markets, though discount rates, funding costs and the insurer's credit still matter.”
Practise it
Practise life settlement until it is automatic: questions that explain every wrong option.
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