Frequently asked questions

Q. Why do people sell a Life Policy?

A. Most sellers are senior citizens with a degenerative illness or in terminal declines whilst they are still alive. By selling their policy they can unlock a percentage of the death benefit whilst they are still alive. The funds from the sold policy can be used in any way they wish but typically are used to pay for medical bills, living expenses or holidays. This allows them a much-enhanced level of dignity and peace of mind for the remainder of their life. There are many reasons why a policyholder might make his policy available, but these are the most common:
• The premiums on the policy are no longer affordable
• The beneficiary for whom the policy was originally purchased is now deceased or no longer has a need for the policy
• The policyholder requires funds to pay for medical expenses for himself or someone who is close to him
• The sale of the policy would allow the policy holder to maintain a desired standard of living and live out his final years with dignity.

Q. How is the price of a policy determined?

A. The fixed sum assured is sold at an equitable predetermined percentage discount and is regulated in most US states. The level of discount is determined by the policy holder’s diagnosed life expectancy.

Q. How did the Traded Life Policy market evolve?

A. The origins for the modern Traded Life Policy market were the AIDS epidemic in the late 1980s. Many young people faced a sudden need for money to pay for their treatment and maintain their standard of living sought liquidity from any long term assets that they owned, including life assurance policies. Traded Life Policy firms emerged to facilitate these sales, and the secondary market for life assurance was beginning, known as Market Makers, facilitating the liquidity goals of individuals living with terminal illnesses by making lump sum payments to them and matching their life insurance policies with investors. Nowadays, people with any of a broad range of terminal conditions are increasingly making their policies available for purchase. The Traded Policy market gives them the economic freedom to choose between a number of buyers and consequently receive a fair market price for their policies. The result is beneficial to both parties; the policyholders gain from improvements in the quality of their lives and investors gain by acquiring investment to a previously inaccessible asset class.

Q. How is the fund valued?

A. As each policy has a fixed return, the only variable is the date of maturity and Life expectancy is calculated at the outset. Value is based on market conditions assessed at the time of valuation and the fixed underlying value measured against an actuarially calculated maturity. Return is unwound monthly from policy acquisition to the estimated date of maturity.

Q. How was the original policy valued?

A. Each policy pays a guaranteed fixed return to the Fund, based on the anticipated life expectancy of the life assured. At the time of purchase the fixed return and life expectancy are calculated using medical records and reports relating to the policyholder. Two medical opinions are obtained on the life insurance and life expectancy. The longer projection is used for all negotiations and premium payment calculations.

Q. How is the return on each policy determined?

A. The return is the difference between the price paid for the policy (including premiums due to end), and the death benefit. An actuarial model is used to assess the value in conjunction with estimated life expectancy reports.

Q. Can payouts be challenged?

A. We only purchase policies that have completed a 2 year period, therefore an insurance company cannot challenge payout.

Q. What is the risk if an Insurance company goes bankrupt?

A. Select seeks to reduce this risk by purchasing policies issued by life companies that have a B+ or higher rating. This rating is issued by A M Best who are the leading Ratings Agency for the United States insurance industry.

Q. Are there any tax implications?

A. Although the fund has obtained a tax understanding from the Governor-in-Council there can be no guarantee that Cayman Islands tax laws will not be adversely changed with respect to the Fund, and the shareholders or the Fund’s income status will not be challenged by such authorities.

All investors should seek independent financial advice regarding income tax regulations appropriate to the country of their residence and their own personal circumstances.

Q. What are the risk factors?

A. Due to the nature of the underlying assets in Traded Policy Funds it may not always be practicable to spread the risk across a wide range of counterparties. Any valuation method will ultimately be a matter of informed judgment. There is no guarantee that there will not be a default in respect of obligations owed to the Underlying Funds, which may impact on returns to its shareholders (including the Fund).

Investment in shares should be considered high risk, and not a complete investment programme. The Net Asset Value per Share, the value of the shares and the income produced can fall as well as rise therefore there can be no guarantee that the investment objectives of the Fund will be achieved.

The performance of the Fund may be additionally affected by fluctuations in currency rates.