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Chances are you have never heard of a proven, easy way to average 15.83 percent per year without market risk. What is this investment? Senior settlements (SS) — more often called life settlements (LS). A SS and a LS are identical.

Here’s a quote from the Oct. 8, 2007 issue of “The Life Settlement Wire” that tells you just how big LS have become as a new class of investments:

“The life settlement market has grown to $6.1 billion in face amount of policies sold in 2006, from $5.5 billion in 2005 and $3.3 billion in 2004, according to Conning Research & Consulting.”

The best way to understand how a LS (LSs is plural) works is by an example, which follows:

Joe, age 68, 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. Before LSs, Joe had no choices, except to cancel the policy and get the $60,000 CSV from the insurance company.

Enter a LS: 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.

This transaction (Joe selling the policy and the investors buying it) is called an LS.

Let’s say Rich is one of the investors. Rich invests $100,000. He will wind up with a diversified portfolio of LSs (about 8 to 11). One of the LSs will be a fractional interest in Joe’s $500,000 policy — say 3 percent — or $15,000.

This LS (Joe’s) will pay Rich exactly $15,000 when Joe dies.

A common question is, “What are the tax consequences of an LS?”

All taxes are deferred until the LS is paid. In the above example, Rich would not have any taxable income — always ordinary income — until he receives the $15,000. If Rich had invested his $100,000 from a qualified plan (401(k), profit-sharing, IRA or the like), the income would stay in the plan (like all other investments) and all income taxes would be deferred until funds are distributed to Rich.

A little background about the life insurance industry will explain why such a large rate of return is possible for LSs.

There are basically two types of life insurance: permanent — has cash surrender value (CSV) — and term (no CSV).

According to Milliman and Robertson, an international actuarial firm, 89.5 percent of Universal Life policies never result in a death claim. The policies are either surrendered, or worse, allowed to lapse. Note: Universal life is the most common type of permanent life insurance sold in the United States.

And what about term insurance? These facts are, although true, almost unbelievable: According to Tax Planning With Life Insurance, authorized by Zaristky and Leimberger, “Ten years after issue, there is only a 15 percent probability that a term policy will be in force at the insured’s death. There is less than a 2 percent probability that term insurance bought twenty years before an insured’s death will be in force.” So, on average, 93 percent of all life insurance policies sold never pay even $1 in death benefits. Amazing!

Think about it, life insurance companies deposit premium dollars year after year and about 93 percent of the time keep all of the dollars, while the insured or his heirs get nothing in return. One exception, the policy owner terminates a policy by getting back the CSV.

Long story short, LSs to the rescue. Until LSs came into being, as described in the above example, LSs were the sole-profit playground of institutional investors: large companies with deep-cash pockets, like giant insurance companies (such as AIG and CNA).

Even Warren Buffet’s Berkshire Hathaway has been in the LS game for about 15 years and recently announced a $400 million loan to a new wholly owned subsidiary to invest solely in LSs.

Go back to Joe’s LS example. If Joe had cashed in his policy for the $60,000 CSV, the life insurance company would have been off of a $500,000 death benefit hook.

It’s easy to see why Joe is delighted with his $150,000 LS. Of course, the insurance company is anything but delighted and would like to keep LSs secret. The pure economic fact is that the investor stands tall in the profit shoes of the insurance company. The investor stands to profit with a gross of $350,000 ($500,000 death benefit, less an acquisition cost of $150,000), reduced by future premiums (until Joe passes on).

A NASDAQ company invented a method that is the bridge that allows the little guy to get into the LS profit game. The LS side of the transaction with Joe is handled by the NASDAQ company, which then arranges for a little-guy investors to purchase LSs. The potential profit percentage calculated on each LS investment is based on the life expectancy of each LS policy seller at about 16 percent.

The result of how a LS transaction is structured allows the LS investor to enjoy an average historical rate of return of 15.83 percent, not worrying about market volatility or whether it goes up or down.

If you want to make a killing on your investments, LSs 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 me (847-674-5299) your name, address, phone numbers business/home/cell) and estimated amount to invest (minimum is $50,000 for accredited investors.) Please put “LS” at the top of your fax.

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Irv Blackman is a certified public accountant and lawyer who specializes in estate planning, business succession and asset protection. Contact him at wealthy@blackmankallick.com or call 417-9732. His Web site is www.taxsecretsofthewealthy.com.