Recently I discovered a great way to make those promising but risky venture capital investments without actually risking my capital. It’s a hedging strategy using Life Settlements. Life Settlements are senior life insurance policies that have been sold by the insured parties for cash, often to pay medical expenses or living expenses. Private investors and institutions have been investing in life settlements for about 10 years.

Insurance companies are not known for their generosity and offer very little to their customers if someone wants to turn in their policy; so smart investors realized that if they bought the polices for substantially more than the insurance company “cash surrender value” and then paid the premiums, the resulting policy payout upon the death of the insured party could provide a very good return. Since no insurance company has ever defaulted on paying out a legitimate death benefit and the insurance companies themselves are considered “investment grade,” the underlying security is a very good piece of collateral. Furthermore, it appreciates in value every year without regard to economic conditions. This is because the older the insured party gets, the closer the investor is to a payment event.

Over the past few years, as this type of security became more popular, a very active Secondary Market has evolved which virtually guarantees investor liquidity. Typically this can be achieved within 60 days. The delay is because it takes that amount of time for the insurance company to change the name of the beneficiary, the Life Expectancy to be updated and the medical review to be processed. This is important because once the original risk investment has matured and the risk has been eliminated, an investor may want to sell the policy that was securing the transaction. The sales price is almost always greater than the purchase price because the insured party has aged. Of course, in the event that the business opportunity you invested in fails, your capital will eventually be returned from the maturity of the life insurance policy.

You would think that private venture investors would make frequent use of this strategy, however, in fact, very few even know about it. Most of the Life Settlement polices available for sale are being acquired by Hedge Funds, Bank subsidiaries and large private investors like Warren Buffet and Bill Gates. Access to the marketplace where policies can be purchased is limited and uninformed investors can easily be misled. Lionheart Capital is a company that specializes in searching, analyzing and purchasing Life Settlements for underwriting investor risk. Their team has access to the largest inventory of available policies at the same price and on the same terms as the institutional buyers. Before you risk all your hard earned money on a business investment that looks like a “sure thing,” check out lionheartcap.com and learn more about Life Settlements.