In several recent conversations with clients, the topic of “off-market” life expectancy providers has come up…again and again. Most of these clients are concerned about the effect these operators are having on their business and the market in general. While most legitimate life settlement companies do not do business with these types of operators, many agents, brokers and some financing entities, mostly promoters of fractional interest and other aggressively marketed schemes focused on raising money from unsuspecting “retail” investors, continue to use them.
Questioning the Legitimacy of Life Expectancy Reports
One of the arguments made by those using off-market life expectancies (LEs) is: “How do you know they aren’t right?” or “How do you know the legitimate companies are right?” Aside from the fact that such questions belie the ignorance of those asking them (they don’t have a true understanding of what life expectancy underwriting is or how it works), the real concern is that they are talking out of both sides of their mouths.
Most of these hucksters actually use legitimate LE assessments issued by mainstream underwriting companies and off-market reports. However, they access the legitimate reports through a life settlement company — a broker, provider, or agent, active in the legitimate marketplace. They use the legitimate reports, which almost always bear a lower mortality rating and longer mean life expectancy, to buy policies in the market, and then they use the off-market reports with higher mortality ratings and shorter LEs to resell the policy or fractional interest in it to unsuspecting investors.
RELATED: Avoid Unlicensed Operators in the Life Settlement Industry — Part 3
These promoters’ behavior says, “There are two LEs, they are very different, but since that difference favors my business model (they pocket the difference between what they pay for the policy and what they resell it for), they are both ‘right.’” Think about that. The argument they give for doing what they do is that since it’s true no one can know if any estimate of an individual’s life expectancy is right until they actually die, it’s OK to use two vastly different LEs, to make money… for themselves… up front. Again, one of the LEs they use is issued by a legitimate company accepted by most sophisticated institutional investors, and the other is from a company that none of these same investors use.
There are usually differences between various LE assessments, but very large differences, and a recurring pattern of large differences in which the off-market report is nearly always shorter than the legitimate report are a huge red flag. Variation around an average is one thing, but being consistently skewed to one side or other, is something else entirely, and it’s generally not good.
Intelligent Investments
In most fractional interest schemes the investors may be high-net worth (HNW) individuals. If they earn enough money each year and have enough money saved, they “qualify” under certain regulations. However, there is nothing about being wealthy or having a high net worth that makes anyone a sophisticated investor, particularly when it comes to life settlements. There are many ways to earn and grow wealth that neither require nor impart investment sophistication to individual investors. In fact, there are many HNW farmers, entertainers, doctors, and other professionals who have the money but not the specialized knowledge and experience to evaluate these schemes — or their promoters. More to the point, most of the people involved in these programs, including their promoters, do not know how to evaluate life expectancy underwriting.
People who claim that because no LE can be known to be right when it is first issued, therefore the off-market underwriters are “just as right” as the legitimate underwriters, are typically not sharing all the LEs they use when they buy policies at one price and resell them (or fractional interests in them) to their retail investors at much higher prices. Doing so would expose their duplicity and might cause the investors to ask why the differences between the two assessments are so great.
Let ISC Show You the Benefit of Legitimate Underwriting and Accurate Life Expectancy Assessments
History reminds us that a majority of these schemes have failed, costing investors millions of dollars in losses. Unfortunately, it can take years and in some cases decades, increasing losses and harming ever greater numbers of investors, but eventually the truth comes out. From an underwriting perspective, a consistent pattern in which the off-market underwriters are always or nearly always shorter than the legitimate underwriters is a clear sign that something is off; prudent investors beware. To learn more about legitimate underwriting and accurate life expectancy assessments, contact ISC Services today.
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