This column is designed to help readers save taxes and create wealth (usually tax-free). Every now and then, we publish an article that hits a home run with the readers. We know we’ve done well because of the tremendous reader response by fax, phone and e-mail. Today, we get a greater depth of feedback by using the Internet and, more specifically, by using the Google search engine.
Earlier this year, we featured an article titled “How To Make 16.28 Percent Annually—Without Risk.” The article explained an investment called “transferable insurance policies” (TIPs). We were buried in an avalanche of reader inquiries requesting more information, and we loved every minute of responding to those inquiries. We felt as if we had knocked one out of the park.
What happened next turned the article into a grand-slam home run. It started with an e-mail sent to me by John Jost (the TIPs expert in my network of professional advisors). His e-mail read, “Late last night I ‘Googled’ ‘transferable insurance policies’—Guess who is number 1?” I hurried to my computer and entered the same three words in the Google search engine. What I saw amazed me. The results page showed that there were about 2,290,000 entries for “transferable insurance policies," and our article lead all other entries. After about 11 days, the article dropped to the No. 2 position. As I write this follow-up article, the original article is somewhere in that 2 million-plus maze. Ah, fleeting fame.
After talking to some computer jocks, they assured me that only word-of-mouth communications to others by the reader of an article can cause what we are calling a “grand-slam home run.” I would like to thank all of the readers of this column for making this possible.
Some of you might have missed the previous article and may want to learn more about TIPs (or more importantly, how to make 16.28 percent per year without risk). We are talking about an investment vehicle called “life settlements” (often called “senior settlements,” or SS for short). A TIP is a fractional interest in an SS.
Let’s look at an example. Joe, 68 years old, owns a life insurance policy with a $500,000 death benefit and a $60,000 cash surrender value (CSV). Joe would like to stop paying premiums. Of course, he can cancel the policy at anytime and get the $60,000 CSV from the insurance company. Instead, an investor (really a group of investors) buys Joe’s policy for $150,000, paid in cash to Joe immediately. The investors now own the policy. The investors will receive the $500,000 death benefit when Joe dies. The investment group has a potential $350,000 profit, minus whatever they have to pay later in premiums to keep the policy in force. This entire transaction (the sale/purchase of Joe’s policy) is an SS.
Currently, there is a public company trading on the NASDAQ that offers SS investments to small investors. Normally SS investments are purchased by large institutional investors like Berkshire Hathaway, AIG and CNA.
Let’s get back to the example of Joe’s policy. Let’s say you invest $100,000 in a TIP. The NASDAQ company would arrange for you to own a fractional interest in Joe’s policy, say 3 percent of the $500,000 policy (or a $15,000 TIP). When Joe dies you will be paid exactly $15,000 which includes your principal, or the amount invested, and your profit. Of course, because you invested $100,000, you actually own a portfolio of about eight to 11 TIPs, including Joe’s TIP.
Based on the 14-year history of the NASDAQ company, your average rate of return on all of your TIPs will be above 16 percent. The historical average was 16.28 percent at the time the first article was written and has inched up to 16.32 percent since then.
As a TIP investor you can enjoy an average rate of return in excess of 16 percent per year, and you won’t have to worry about the market being volatile or whether it goes up or down. You will be assured of the guaranteed return of your principal as well as your profit. Best of all, you keep 100 percent of the profit, because there are no fees or costs when you buy a TIP.
There are two simple rules regarding taxes on TIP profits. First, the tax on your profit (for each TIP you own) is deferred until you actually receive your principal and profit. Secondly, your profit is taxed as ordinary income.
If you want to make a killing on your investments, TIPs are not for you. But if a set rate of return, with no market risk, is of interest to you (or your IRA, 401(k) or other qualified plan), fax your name, address, phone numbers (business/home/cell) and estimated amount to invest to me at 847-674-5299. The minimum amount is $50,000 for accredited investors.