An SLS is a no longer wanted, needed or affordable life insurance contract sold by an insured to a third party who assumes responsibility for the payment of premiums until the policy matures at the insured’s passing.
An SLS functions very similarly to a zero-coupon bond. The purchaser is buying future dollars at a significant discount. In consideration for premiums paid, the life insurance company will pay the death benefit at the insured’s passing provided the contract is in good standing and all premiums are paid up to date. Unlike any other market-based investment, SLS’s behave like a performance contract and it should be noted that the US Legal Reserve Life Insurance System has never failed to pay a legitimate claim since the inception of the industry. The only trigger affecting the purchaser’s receipt of the death benefit is the mortality of the insured.
Relative to other risk-adjusted fixed-income investments, the return characteristics are attractive and there are no human or other variables like manager performance or geo-political upheaval that affect the outcome.
SLS’s provide exposure to a unique non-correlated asset class with a known cost and a known yield, with only one primary risk…time. These characteristics make them particularly appropriate for high-net-worth investors in search of portfolio diversification and low-volatility, risk-adjusted returns.