Alternative Asset Class
Life Settlement Funds
A secondary market strategy offering institutional-grade returns with low correlation to traditional markets.
What Is a Life Settlement?
A life settlement is the sale of an existing life insurance policy by its owner to a third-party investor for a lump sum greater than the policy's cash surrender value but less than its net death benefit. The buyer assumes responsibility for future premium payments and receives the death benefit upon the insured's passing.
This secondary market for life insurance has existed for decades and is regulated at the state level across the United States. It provides policyholders with liquidity they would otherwise forfeit by lapsing or surrendering a policy — and creates a compelling investment opportunity for sophisticated investors.
How the Secondary Market Works
Life settlement funds pool capital to acquire a diversified portfolio of policies, generating returns through the spread between acquisition cost and death benefit.
Policy Origination
Policies are sourced from policyholders aged 65 or older with life expectancies typically between 2 and 15 years. Each policy undergoes rigorous medical underwriting and legal due diligence.
Valuation & Acquisition
Independent life expectancy providers assess each insured. Actuarial models determine fair market value. The fund acquires policies at a discount to face value, creating the return spread.
Portfolio Management
Premium payments are maintained to keep policies in force. The portfolio is actively monitored, with ongoing life expectancy updates and liquidity management across the policy lifecycle.
Maturity & Return
Upon the insured's passing, the fund collects the full death benefit. Returns are realized as the difference between the death benefit and the sum of acquisition cost plus premiums paid.
The Secondary Market Arbitrage
Life settlement funds exploit a structural inefficiency: insurance companies price policies for long-term lapse rates, while secondary market buyers price for actual mortality outcomes.
Lapse Rate Inefficiency
Insurers rely on a significant percentage of policies lapsing before maturity. When policies are sold on the secondary market instead of lapsing, the buyer captures value the insurer priced in as profit.
Information Asymmetry
Sophisticated buyers with access to independent medical underwriting can price mortality risk more accurately than the original policyholder, creating a pricing edge at acquisition.
Non-Correlated Returns
Policy maturities are driven by biological outcomes, not economic cycles. This structural independence from equity and credit markets makes life settlements a genuine diversifier.
Defined Return Profile
Each policy has a known face value and a modeled life expectancy. The return is mathematically bounded — the upside is the death benefit, the cost is acquisition price plus premiums.
Key Investment Benefits
Low Market Correlation
Returns are driven by actuarial outcomes, not stock market performance, interest rates, or macroeconomic cycles.
Attractive Risk-Adjusted Returns
Historically, life settlement funds have delivered returns in the high single digits to low double digits, with volatility significantly below traditional equity strategies.
Portfolio Diversification
Adding a non-correlated asset class can reduce overall portfolio volatility and improve the Sharpe ratio of a diversified allocation.
Hard Asset Backing
Each investment is backed by a legally binding insurance contract issued by a rated carrier, providing a degree of structural security uncommon in alternative assets.
Predictable Cash Flow Profile
Actuarial modeling provides a statistical distribution of expected maturities, enabling fund managers to project cash flows and manage liquidity with reasonable precision.
Regulated Asset Class
Life settlements are regulated in the majority of U.S. states, with licensing requirements for brokers and providers, adding a layer of investor protection.
Who Can Invest
Access to life settlement funds is restricted under U.S. securities law. Aevum Capital works exclusively with qualified investors.
Accredited Investors
Individuals with net worth exceeding $1 million (excluding primary residence) or annual income above $200,000 ($300,000 joint) in each of the two most recent years, with a reasonable expectation of the same for the current year.
Qualified Purchasers
Individuals or family-owned businesses owning $5 million or more in investments. Qualified purchasers may access a broader range of fund structures under the Investment Company Act.
Family Offices
Single-family offices managing assets for ultra-high-net-worth families are natural allocators to life settlement strategies, given their long investment horizons and appetite for illiquid alternatives.
Institutional Investors
Endowments, foundations, pension funds, and registered investment advisers acting on behalf of qualified clients may participate subject to applicable regulatory requirements.
Risk Considerations
Life settlement investments carry risks that prospective investors should carefully evaluate. Life expectancy estimates are probabilistic, not deterministic — actual maturities may differ materially from projections, affecting the timing and magnitude of returns.
Premium obligations must be maintained throughout the holding period. Funds must manage liquidity carefully to ensure premiums are paid and policies remain in force. Illiquidity risk is inherent — secondary market transactions for fund interests are limited.
Regulatory changes at the state or federal level could affect the life settlement market. Carrier credit risk, while generally low given investment-grade ratings, is also a factor. Investors should review all offering documents carefully and consult independent legal and financial advisors.
Explore Life Settlement Allocations
Aevum Capital works with accredited investors, qualified purchasers, and family offices to evaluate life settlement fund strategies. Contact us to begin a confidential conversation.
This page is for informational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any security. Life settlement fund investments are available only to accredited investors and qualified purchasers as defined under applicable U.S. securities laws.