How Investors Are Making Money by Betting on When People Are Going to Die
While it feels icky, betting on death can be pretty lucrative.
Stephen Olmon, an entrepreneur who’s invested in several life settlements through an investment entity called Life Investors Management Co. (LIMco), shared that his investments have produced an “exceptional” internal rate of return of 44% (e.g. if you invest $10K and wait 5 years, a 44% IRR would net you $62K).
Weirdly enough, it’s completely legal. The trade is:
- Jack, an older person, takes out an insurance policy and names an investor as the beneficiary
- Trevor, the investor, pays Jack 5% of the face value (e.g., $500,000 to take out a $10 million life insurance policy) and also assumes responsibility for the policy’s premiums until the person dies
- When Jack dies, the insurance pays out money to Trevor
- Trevor earns more profit from the investment if Jack dies soon after he takes out the insurance policy because he will have paid less in premiums
The secondary life-settlement market is reasonably active. Based on public record requests to state insurance departments, an estimated $4.5 billion in the face value of life settlements was sold in 2022.
As morbid as it sounds, life settlements are a growing market as more prominent asset managers look to diversify from a truly uncorrelated asset class—death is not tied to interest rates, equity valuations, or the real estate market.
