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Life settlements: Invest warily

By Jennie L. Phipps ·
Thursday, August 30, 2012
Posted: 5 pm ET

In 2010, more than 900 investors, most of them retirees, put their money in life settlements -- investments offered by Retirement Value LLC and Hill Country Funding LLC. The investments went sour, and the Texas State Securities Board accused both companies of securities fraud and deceptive practices.

The case is expected to conclude in January with investors likely to get back what they spent on the investments over a 10-year period, according to the Texas State Securities Board. But Geoff Weisbart, a principal in Weisbart Springer Hayes in Austin, Texas, which represented investors in the case, says he plans to seek additional compensation for investors.

There are several other similar cases involving other life settlement companies that are also facing fraud accusations winding their way through the courts elsewhere.

Life settlements allow people who have life insurance policies to sell them while they are still alive for a percentage of their value after their death. The deal gives them cash to spend now. It's a fairly simple transaction, and Weisbart says, "I don't see any risk to the seller. As long as it was a legitimate sale and they got their money, I don't think they have anything to worry about."

The problems arise for investors in these transactions, who tend to be older people interested in a better-than-usual return on their retirement nest egg. Retirement Value and some other companies that are under investigation are accused of underestimating the life spans of the people from whom they purchased the insurance policies. Because the purchaser must continue to pay the premiums on the policies in order to keep them in force, the value of these policies are generally lower than buyers are led to believe.

Investing in life settlements is still being held out as a retirement planning option to some people. If you are offered one of these deals, Weisbart advises getting second and third opinions from a knowledgeable investment adviser, but he doesn't dismiss their value. "There is clearly a track record of life settlements being successful, but you need to understand what you are investing in. This is a sophisticated, long-term investment, and people need to get appropriate advice."

If you are currently invested in one of these and satisfied with it, Weisbart still thinks that you ought to find an expert to review the investment with you again. He also advises current investors to pay attention to news about life settlements and to be prepared to react if the plan in which you're invested is questioned.

The original version of this blog post said the case is expected to conclude in the next month or so, rather than in January 2013.

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