Total Fixed Return (Risk vs. Return)

Assessing Risk vs. Return

Principal Risk

Unlike most traditional investment vehicles, PWCG’s life settlement investments are not directly affected by stock market volatility, interest rate fluctuations, variations in the economy, or foreign instability. The factors that do affect these investments are few, and we consider them carefully before we act.

Two of the major factors PWCG considers when purchasing policies for the Trust are:

  • The financial strength of the underwriting companies
  • Possible loopholes that could affect the full payout of a policy

To minimize risk regarding the first concern above, all policies involved in the PWCG Trust must be issued by A-rated or better insurance companies as rated by Standard & Poors. These companies are typically well-known and reputable companies such as Lincoln Financial, MetLife, or New York Life. Consequently, investors can feel confident that their payout sources are some of the largest and most stable companies in the world. Regarding loopholes, through extensive analysis and experience, we have established a set of guidelines that anticipate loophole situations and eliminate policies that are vulnerable to them. These loopholes include contestability of the policy and the legal rights the previous owner or beneficiary may have to the policy benefit.

Contestability issues, for example, would be if an insured individual did not fully disclose his/her past medical history and died from a related ailment, or if he/she committed suicide. As long as the death occurs after the contestable period, the life insurance company must legally pay the full face amount of the policy to the PWCG Trust. We select only policies that are beyond any contestable or suicide clause period (for most policies, the contestability period is two years from the date of issue.) PWCG addresses risks of legal recourse from the previous owner and beneficiary by requiring two documents before a life insurance policy is purchased from a senior:

  • The policy owner must supply a statement from his/her physician that he/she is of sound mental capacity and able to enter into a contract.
  • The beneficiaries also must sign a statement that they are aware the sale of the policy will rescind any future rights they may have to the policy benefits. An insurance policy is only purchased for the PWCG Trust after both signed statements have been received.

Term Risk

Policies offered by PWCG have a minimum total fixed return of 100%, meaning investors will double their money. In fact, many policies have paid a 150% total fixed return. Since PWCG purchases policies before offering them, investors know exactly what the total return will be before purchasing an interest in the specific policy or policies. This return is paid in full upon the maturity of the policy.

No one can predict exactly when the insured will pass away and the policy will mature. Because the exact date of passing is the single factor that determines the effective annual rate of return, the shorter the longevity of the insured, the higher the effective annual rate of return. In contrast, the longer the actual longevity, the lower the effective annual rate of return.

Factors Influencing Percentage of Return

Based on our previous purchases of policies, we most often have been able to negotiate a discount in purchase price while still providing the insured with substantially more money than the surrender value on the policy. Factors such as age of the insured, health conditions, and whether a policy is a single-life or survivorship policy can affect the total fixed return percentage. Since PWCG already has purchased the policy, the total return is always known by the investor in advance.

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