subject: Life Insurance Settlements -Investing in Life Settlements [print this page] As life settlement brokers in the Life Settlement industry, it is becoming more and more apparent to us Integrity Life Solutions, LLC, that investments in life settlements may not only be prudent from a diversification standpoint, but also relative to internal rates of return, or return on investment. Life Settlements are generally non-correlated investments with possible yields from 10% to in excess of 20% on a net basis, even after accounting for fees and other expenses. The slowdown of purchases of life insurance policies on seniors and the lack of liquidity in the marketplace has made this truly a buyer's market.
But we find that a lot of institutional investors are kicking the tires again. The market has stabilized in the sense that certain illicit behaviors have all but ceased (STOLI and illicit premium finance transactions) and the Internal Revenue Service has opined in two Revenue Rulings last year (IRS Revenue Ruling 2009-13 and IRS Revenue Ruling 2009-14) dealing with the tax impact on the seller of a life settlement, and the investor, respectively. Although these IRS Revenue Rulings may not have the effect of adjudicated or statutory law, they do provide some clarity as to tax rules as they apply in the Life Settlement arena. http://www.irs.gov/pub/irs-drop/rr-09-14.pdf
In the first IRS Revenue Ruling 2009-13, the Service asks and then answers two questions:
1. What constitutes a gain?
2. To the extent there is a gain, how is it characterized ordinary or capital?
