Wed. Jun 7th, 2023

Life Settlement Structured Notes

A life settlement structured note is an investment product that is backed by a pool of life insurance policies. It provides investors with a high rate of return and diversifies their portfolios.

Since 2008, a new breed of financial firms has been pursuing this strategy. Hedge funds and Wall Street banks are now securitizing life settlements as they look to get their rating machines humming again.


Life settlement structured notes are a form of investment that offer significant diversification, but they also present a number of challenges. These include longevity risk, high interest rates, and complex pay-out structures.

Longevity risk is the risk that the insured will live longer than expected, and this can result in lower cash flows. This can be a problem for investors as it could cause the value of their structured note to go down.

The underlying mortality tables used by life insurance companies and life settlement funds are proprietary and are based on actuarial studies. Therefore, there is a great deal of uncertainty surrounding the accuracy and reliability of these models.

This is particularly true for life settlement funds that rely on these tables to make their valuations. As a result, they have experienced some difficulties in the past.

However, these problems are not currently affecting the market as much as they were in the past. This is due to the introduction of IFRS 13 accounting standards, which mandate that fair value measurements be taken in all transactions. In response to this, a number of data providers have launched valuation models based on market-based input values.

These market-based input values should be able to provide investors with a more accurate picture of the underlying value of life settlement portfolios. This is important for several reasons.

First, the IFRS 13 standards require that all financial assets be priced based on their fair value. This is a requirement that life settlement funds have to adhere to in order to be regulated as an asset class under these standards.

Another important consideration is that the IFRS 13 standards also require that life settlements be valued based on a market-based price. This is necessary to prevent fund managers from overvaluing their portfolios and thereby increasing their fees.

As a result, many life settlement funds are currently pricing their portfolios on an applied mark-to-myth basis. This is causing an extreme discount to their applied market valuations on the secondary market and can be detrimental for investors.

See also  What is the Best Structured Settlement Company?

In order to avoid these problems, it is critical that all life settlement funds use a market-based valuation of their portfolios and disclose this value to investors. This will help them to get rid of the current mark-to-myth valuations and increase liquidity in the tertiary market.


Maturity is the time at which an investment must be redeemed or “called” by the issuer. This can occur at any time during the note’s life, and it can result in a loss of the investor’s original investment amount.

Many life settlement structured notes have a minimum guaranteed return, meaning that you will receive at least a certain percentage of the original investment at maturity. This may be based on an underlying asset or benchmark, such as the S&P 500 index.

The underlying asset or benchmark may be a stock, bond or commodity. In this case, the performance of the underlying asset or benchmark could affect the interest and principal payments to you as well as the pay-out structure of the note.

You should read the Product Highlights Sheet and Prospectus carefully to understand how interest and principal payments are affected by the underlying asset or benchmark. You should also ask questions of the issuer or your financial advisor.

In addition, you should consider the creditworthiness of the issuer of the structured note and whether it will be able to pay interest or principal on time. If the issuer of the note becomes insolvent, the entire value of your investment could be lost.

Another concern is market risk, which can be mitigated by purchasing structured notes with hedging or downside protection features. However, this can be difficult to achieve.

The market for life settlement structured notes is highly competitive, which means that you must do your research and compare different products before investing. This is especially true if you are looking for an investment with a higher expected return.

Pay-out structure

If your client’s life insurance policy has cash value, you may be able to offer them a structured settlement. These are a type of structured annuity that offers tax-free, regular payments. The payout is designed to meet the needs of the person receiving it, and is usually a more stable option than a lump sum.

See also  Structured Settlement Group Inc

Structured settlements are a good option for clients who need to pay medical bills, mortgages, or other expenses. However, they do have some drawbacks.

The main advantage of a structured settlement over a lump sum is that it provides ongoing income. That’s especially helpful for seniors who want to have a steady stream of income during retirement, which is not possible with a lump sum.

These payments also come with built-in protections. If the insured dies within the time frame that has been specified, their beneficiary will receive any remaining payments.

A second benefit is that the payment is tax-free for most people. This is especially important for seniors, who are often concerned about outliving their savings.

There are three different pay-out structures available in a life settlement. These include pure lifetime income, a fixed period with life only, and a combination of life only and period certain payments.

The first option involves the insurer paying out equal amounts of income for the rest of your life or a specified number of years. It’s ideal for beneficiaries who need a consistent source of income, such as a widow or widower with a house mortgage.

You can also choose a mix of lifetime and period certain payments, which can be particularly useful for older people who have accumulated a large sum of money but need it distributed over a specific period of time. The payments are tax-free and can be used to help pay for living expenses.

The most common pay-out structure in the life settlement market is a lump sum payment. This is most suitable for beneficiaries who are financially responsible and will use the funds responsibly.


Currently, there is little liquidity in the life settlement structured notes market. Nonetheless, it is expected that the secondary market will become more liquid as life settlement funds start to use market-based valuations.

There are a variety of factors that can affect liquidity, including the price of the note and its creditworthiness. Issuers can also experience difficulties in making payments to investors and maintaining the note’s value. In addition, the servicer of a life settlement transaction must track the status of all policies and their premiums to ensure that they remain effective.

Structured notes typically have two underlying components: a bond component and a derivative component. The bond component takes up most of the investment and provides principal protection, while the derivative portion offers upside potential.

See also  Is VA Disability Considered a Structured Settlement?

The derivative component can be linked to a single stock, an equity index or a commodity. It can also follow currency prices or interest rates.

These types of structured notes are popular with investors who want to diversify their portfolios. However, they are also risky and can result in losses if the underlying investments lose value.

Another problem with these investments is that they can have hidden costs or imputed costs. These costs are derived from the way the product is structured, and they can be difficult to determine without detailed knowledge of the terms.

Investors should always do their own research on a product before purchasing it and make sure that it fits their investment objectives, risk tolerance and financial situation. They should also speak to a qualified financial professional before making an investment decision.

When investing in a structured note, investors should consider its fees and costs, estimated value, maturity, whether or not there is a call feature, pay-out structure, tax implications and the creditworthiness of the issuer. They should also ask about any conditions, such as limited gains or pay-out caps, that could limit the amount of money they can earn.

Investing in a structured note can be a good way to gain exposure to markets that are otherwise hard for average investors to access. But a structured note can also have a lot of hidden risks that are not obvious to most investors. For example, it is possible to lose all of your money in a structured note if the issuer goes bankrupt.

Jeffrey Augers
Latest posts by Jeffrey Augers (see all)

By Jeffrey Augers

Jeffrey Augers is a highly skilled and experienced financial analyst with over 12 years of experience in the finance industry. He has a proven track record of delivering exceptional financial insights and recommendations to clients, empowering them to make informed decisions and achieve their financial goals. Jeffrey holds a Bachelor's degree in Finance from the University of Michigan, and an MBA from the Wharton School of Business.