Life insurance policies have long been a traditional form of investment. For policy owners, they can provide a certain peace of mind regarding the financial futures of their beneficiaries. On the other hand, for investors, life insurance policies can be an opportunity to diversify their portfolio and seek high returns. Unfortunately, as evidenced by GWG Holdings, life insurance investment can also mask a host of financial risks.
The Rise and Turbulence of GWG Holdings
Once a lighthouse for individuals looking to transform their life insurance policies into immediate cash, Dallas-based GWG Holdings, Inc. has been through a tumultuous time financially. From 2012 to April 2021, the firm was actively issuing high-yield L Bonds, attracting investors with their potent yields. However, the company’s stability began to waver, culminating in a Chapter 11 bankruptcy declaration by April 20, 2022. Trading under a cloud of nearly $2 billion in net liabilities, one can’t help but question the company’s strategy and transparency.
The Liquidation and Formation of the Wind Down Trust
The aftermath of GWG’s bankruptcy saw the total liquidation of the company and the inception of two liquidating trusts: the Wind Down Trust and the Litigation Trust. GWG L Bondholders were now endowed with the “New Series A1 WDT Interests,” a result of the decided termination of GWG L Bonds. This move indicated the road to recovery for these investors now lied within the potential value recuperation the Wind Down Trust could administer.
The Wind Down Trust’s purpose is to liquidate and manage GWG’s assets, including their portfolio of life insurance policies and equity interests in FOXO Life Sciences and Beneficient Company Group, L.P. However, with Beneficient’s stocks taking a severe nosedive publicly and a token $10 million gained from the sale of GWG’s life insurance portfolio, the future for L Bondholders looks bleak.
Lessons for Life Insurance Investors
GWG Holdings’ descent provides valuable lessons for prospective investors in life insurance policies. One must always conduct thorough due diligence before investing in such alternative investment solutions. Understanding the financial health of the issuing organization, the nature of the security, expected returns, and maturity periods are critical steps before investing in life insurance bonds.
Moreover, investors need to consider the liquidity of their investment. Life insurance bonds might not be the best choice for individuals seeking short-term profits since most of these investments offer returns in the long run. Such policies are also subject to insurance risks, which could potentially affect anticipated returns.
Finally, getting legal advice before investing in life insurance bonds might be beneficial. Recent GWG L Bondholders, finding themselves in precarious situations, have resorted to seeking assistance from seasoned lawyers to recover losses.
Conclusion
Investing in life insurance may seem like an exciting prospect, but the case of GWG Holdings teaches us that such investments can expose investors to unforeseen risks. Potential investors should conduct appropriate research and perhaps seek expert advice before venturing into high-risk investments such as life insurance bonds. The securities market isn’t always predictable. Yet, with caution, comprehensive investor education, and informed decisions, people can weigh the risks against potential returns more confidently.
