What Is an L Bond?

An L bond was a high-yielding debt instrument used to finance the purchase of insurance policies in the secondary market.

GWG Holdings, a Dallas-based financial services company, created L bonds, a type of alternative investment that was privately issued. They ceased selling them in April 2021.

How L Bonds Work

In the event that the policyholder dies, life insurance covers the beneficiaries. A policyholder with life insurance can also sell it in the secondary insurance market.

After the transaction is settled, the beneficiary becomes the investor who purchased the life insurance policy. The buyer is responsible for paying the premiums to the insurance company. When the policyholder dies, the insurer pays the buyer the payout.

In a strategy called a viatical Settlement, life settlement investors purchase life insurance policies. This strategy allows investors to profit by comparing their expected returns to the seller’s life expectancy. The investor will make a greater return if the seller dies earlier than the period. Premium payments stop. These life insurance assets are mainly invested in by institutional investors.

The issuer used funds to buy life insurance contracts that were listed in the secondary market. These contracts were usually obtained from an insurance settlement. In this case, the premium payments were assumed by the issuer.

An L bond is a bond that provides a high yield to the bondholder, in return for taking on the risk of insurance premiums and benefits not being paid.

L bonds were sometimes used to finance the premium payments and initial purchase of life insurance policies by investors who purchased them. The money from issuing an L bond was used for life insurance settlement transactions to pay the premiums to the seller.

GWG Holdings & the L Bond

The private placement was the L bond. It was a specialty high-yield bond that was created and issued by GWG Holdings ( GWGH), which is a Dallas-based financial services firm that specializes in alternative assets. 3

The company bought life insurance contracts from senior citizens at a discount of their benefit value. The company could pay $250,000 to a senior for their $1,000,000 life insurance policy. They also take over $30,000 per year in premium payments.

The insurance company pays $1 million to GWG when the senior passes away. The L bond funds were used to finance and purchase additional life insurance assets.

The firm’s portfolio contained 1,081 policies worth $1.92 billion in benefits. The firm’s portfolio contained 1,081 insurance policies with benefits totaling $1.92 billion.

GWG failed to file its annual reports for the year ending December 31, 2020, and Form 10-Q for the quarter ending March 31, 2021. GWG has suspended the offering of L Bonds after failing to file its 2020 annual reports in time. GWG suspended its offering of L Bonds after failing to file its 2020 annual report in time.

GWG Holdings sold L Bonds between 2012 and 2021. GWG Holdings sold L Bonds from 2012 to 2021.

Updated: December 25, 2022 — 6:34 am

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