Traditional assets like stocks comprise a significant portion of many investors’ portfolios. While stock market fluctuations are nothing new, recent trends have even the most seasoned investors wondering what’s ahead and questioning what to do.
Life settlements are a lesser-known but powerful alternative investment that offers stability, predictable returns and zero correlation with market swings. Here’s a closer look at why a life settlements investment is an ideal hedge in volatile times.
WHY TRADITIONAL INVESTMENTS ARE PROVIDING LESS SAFETY
Economists have sounded the alarm bells in 2025; there’s a one-in-three chance there’s going to be a recession in the next 12 months. Policy uncertainties and tariffs associated with a new administration, high interest rates that make borrowing more expensive and other factors are creating a perfect storm of economic stressors that may tip our market into a downturn.
Moreover, the Ukraine war, Middle East tensions and rivalry between the U.S. and China are causing investors to pull back from emerging markets and riskier assets. The stock market’s fluctuations in recent years have left many investors feeling uneasy. Now, they are looking to hedge against market volatility through portfolio diversification strategies, such as investing in alternative asset classes.
One asset class that’s gaining notable attention is life settlements — when a life insurance policyholder sells their policy to an investor for a percentage of the death benefit.
ARE LIFE SETTLEMENTS A GOOD INVESTMENT IN A RECESSION?
One of the main reasons the life settlements industry is experiencing rapid growth is that life settlements are non-correlated assets. They have no ties to the stock market or any other market performance. Likewise, they’re not directly affected by interest rates, political policies, investor behavior or any other factors that cause fluctuations in value across various asset types.
Life settlements investments are based on actuarial calculations and life expectancy projections. While the policy’s face value stays constant, your returns can vary depending on how long the insured lives and other holding costs. In general, life settlements can offer annualized returns of 11% to 13% and provide the opportunity to build long-term wealth. They’re also backed by companies rated A or higher by A.M. Best.
Actuarial data can also be used for cash flow modeling. This helps investors with a diversified portfolio of policies, each with varying life expectancies, to spread out the timing of death benefit payouts. While it’s impossible for cash flow models to be exact, life settlements can still provide some predictability in distributions even when investing during market downturns.
TOP 3 PORTFOLIO BENEFITS OF A LIFE SETTLEMENT INVESTMENT
The primary benefits of incorporating life settlements as alternative assets into your portfolio are that they provide diversification, stability and predictability. Let’s look at it in detail.
Diversification
Adding life settlements to a portfolio provides exposure to a completely different asset class. Life settlements aren’t tied to economic performance like most other asset classes. They also don’t rely on company earnings, interest rates or property values. Instead, they are tied to a person’s lifespan, and returns are based on the timing of the policy’s payout.
Stability
Life settlements are less sensitive to the interest rate fluctuations, inflation or economic uncertainties that typically affect the market. Because their performance isn’t tied to stock market movements, they can serve as a stock market volatility hedge. Instead, life settlement investment returns are based on actuarial life expectancy and the eventual payout of life insurance policies, not on market sentiment or economic cycles.
Predictability
While stock market returns can be volatile and unpredictable, life settlements offer greater transparency around the expected payout. The policy’s death benefit is fixed, and as long as the policy remains in force, the eventual return isn’t subject to market swings.
However, because the timing of the payout depends on how long the insured lives, the exact return and length of time you’ll have to pay the policy premiums can vary. While this is a downside of life settlement investments, technology, such as artificial intelligence (AI), is continually making life expectancy estimates more accurate.
WHAT INVESTORS SHOULD KNOW BEFORE INVESTING
Before investing in life settlements, understand that it’s a long-term investment and that you may need to meet a certain income level before buying one. Below is additional information to be aware of.
1. You Should Consider Life Settlements as a Long-Term Investment
There’s no open market if you want to sell your life settlement because you need cash, making it much harder to find a buyer. You’d have to find another investor or high-net-worth individual interested in alternative investments. The lifetime settlement resale market may grow in the future as its popularity expands, but for now, you might not be able to find a buyer easily.
2. You Generally Need to Be an Accredited Investor
If you don’t keep up with the premiums, the policy could lapse, and you’d lose your entire investment. That makes them best suited for people who are sure they can meet the ongoing financial obligations associated with this investment.
As a result, licensed brokers and providers may only work with accredited investors. These are usually individuals with a net worth exceeding $1 million (excluding their primary residence) or those with an annual income of at least $200,000 (or $300,000 jointly with a spouse) for the last two years.
3. You Should Work With a Licensed Life Settlement Provider or Broker
Before embarking on your journey of purchasing a life settlement investment, know that many states require policyholders to work with licensed life settlement providers and brokers when selling their policies. Because these professionals are an intermediary between you and the policyholder, you’ll need to work with them as well. They’ll source policies, verify documentation and facilitate the sale.
Reputable brokers also won’t hesitate to give you written disclosures explaining the transaction process, the parties involved and their compensation and potential tax implications. Be wary of unlicensed providers or those lacking transparency.
RETHINKING STABILITY IN A VOLATILE WORLD
Recession or not, you don’t have to ride the market waves. A life settlement investment is an opportunity to invest in something predictable and detached from typical economic volatility. For investors seeking long-term growth and greater stability in their investments, life settlements can serve as an alternative asset class. They diversify your portfolio and smooth its performance with non- market correlated returns.
Ready to add life settlements to your portfolio? Reach out to i2 Advisors today