Your next opportunity was born through the 1911 Supreme Court case Grigsby v. Russell. Until this historic ruling, life insurance policy owners were barred from selling their policies. That is, until Justice Oliver Wendell Holmes decided that life insurance policies are real properties — and therefore, can be sold before the owner dies.

That’s how this next company built the foundation for its business. In the U.S. alone, people young and old spend trillions of dollars on life insurance policies. Many policy owners feel they don’t even need them. So to get rid of the unwanted policies, they have three choices: stop paying, settle for the policy’s cash surrender value, or sell the policy to an investor willing to pick up the payments.

Obviously, it’s not smart to just stop paying, especially if the policy owner has already spent a significant amount on it. That said, people terminate $930 billion worth of policies every year.

That simple fact leaves smart policyholders with two new options: Sell the policy back to the provider or sell it to an outside party…

If you sell a policy back to the provider, many times you end up losing a lot of the money you already spent on it. But if you sell to an outside investor, they may be willing to pay a much higher price for your policy. This outside investor isn’t necessarily taking a bet on your life expectance — although that is part of it. He or she is actually analyzing the structure of the policy as a real investment in an asset.

Leaders in a New Asset Class

Presently, few people know about this option. It usually takes an informed financial advisor to pass this option onto policy owners. And while the number of people in the know is small, it is growing. That means big money for Life Partners Holdings, Inc. (LPHI: NASDAQ).

You see, this company acts as a matchmaker. It matches policy sellers with purchasers. That way, it doesn’t take any of the risk other than the liquidity of the life settlement market. If no one is buying or selling, Life Partners doesn’t get paid. Fortunately for the company, that’s not the case…

As more and more policy owners become aware of this valuable option, the volume of life settlements will continue to rise. Even though the industry is turning 100 soon, it’s only just begun to pick up steam. Even a decade ago, this niche was virtually nonexistent. As of 2006, it was already a $6 billion per year industry.

Now, the real growth begins. The industry is expected to double in the next five years…

Life Partners is in the best position to take advantage of this growth. The company is eating up more and more market share every day. Last year, the company’s bottom line grew a remarkable 458%. On top of this, Life Partners is already an incredibly cheap stock.

The company trades for less than 13 times its trailing earnings. Considering Life Partners’ growth, that multiple is extremely low. Investors have punished Life Partners because it’s in the financial sector — an unfair and flat out wrong assumption, in our opinion. The difference between Life Partners and every other financial institution out there is leverage. Life Partners doesn’t leverage its assets. Everything the company does is backed by real assets, adding a layer of safety investors won’t find with too many financial stocks these days…

Life Partners is safe, cheap, and growing at breakneck speed. On top of that, it’s in an industry that is about to double in only five years. Keep a close watch on this one…

Sincerely,

Jim Nelson
July 25, 2008

P.S.: These kinds of out-of-the-norm plays are what we tend to be attracted to. In fact, fellow editor Greg Guenthner has a few plays that no analyst or talking head would even go near. Why wouldn’t they go near it? It might make them look bad to talk about new ideas. But, that’s how Greg’s led his readers to stocks that jumped as high as 249% in just a few months and even 217% in just one week!

Jim Nelson

Jim Nelson began his investing career during the tech boom at age 14 – with purchases of Starbucks and AOL. Early inspiration came from an old Tweedy Brown whitepaper: “What Works in the Market.” He graduated with a degree in Political Science from Pittsburgh University, Nelson focuses on income investing, including dividends, covered calls, and fixed-income. Additionally, he covers MLPs, ADRs, utilities, consumer staples and tobacco. Nelson is the managing editor of Lifetime Income Report.

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