Last year, one of the few publicly traded companies in the life settlement sector lost over 20% of its value in a single day. A short seller accused Abacus Global Management of inflating returns by using unrealistically short life expectancy estimates.
Abacus denies the allegations and is contesting them in court. However, the episode has revived a critical question for investors in this asset class: How can you be sure the returns reported by funds are genuine?
As with any investment, due diligence is essential. Let’s examine what happened at Abacus, review similar past industry failures and highlight the key red flags investors should watch for when evaluating a life settlement fund or manager.
WHAT HAPPENED AT ABACUS
In June 2025, Morpheus Research, a short seller, published a report accusing Abacus Global Management of manufacturing “fake revenue” by inflating the value of its life insurance policies through overly optimistic life expectancy estimates.
Abacus’s stock dropped approximately 21% on the first day, erasing over $200 million in market value. A week later, a follow-up report from Morpheus triggered another sharp decline.
How Short Life Expectancy Estimates Affect Investors
When you buy a life settlement, your return depends largely on how long the insured lives. The sooner the policy pays out, the fewer premiums you pay and the higher your potential return.
Shorter life expectancy estimates make a policy look more profitable because it suggests you’ll pay fewer premiums and collect the death benefit sooner. Overly optimistic estimates can inflate reported returns, leading investors to expect more than they may ultimately receive.
Abacus’s Response
Abacus firmly denies the allegations, noting that the disputed estimates originated from only one of six life expectancy providers and are not used to value policies on its balance sheet. The company says the short seller was amplifying a competitor’s smear campaign, and has sued that competitor for defamation.
As of this writing, there has been no regulatory or class action litigation against Abacus.
LIFE SETTLEMENT FUND SCANDALS HAVE HAPPENED BEFORE
While the Abacus story is still unfolding, the life settlement industry has faced similar challenges in the past, often with serious consequences for investors.
Life Partners
In 2012, the SEC charged Life Partners Holdings—then a major U.S. life settlement firm—with fraud. The company relied on life expectancy estimates from a single Nevada physician without actuarial training who systematically produced overly short estimates.
About 22,000 investors held fractional interests in Life Partners’ policies. After initial premium funding ran out, because the insureds lived much longer than forecast, investors faced the choice of paying additional premiums to keep policies active or losing their entire investment, especially after Life Partners filed for bankruptcy in 2015.
GWG Holdings
A decade later, GWG Holdings raised over $1.5 billion from investors by selling high-yield “L Bonds” backed by a portfolio of life insurance policies. These L Bonds functioned as loans to GWG, offering fixed interest payments and a return of principal at maturity.
GWG depended on continual new bond sales to pay interest and principal to earlier investors. When this model collapsed in 2022, GWG filed for bankruptcy. Investors are now expected to recover only pennies on the dollar.
Federal prosecutors have also charged GWG’s former chairman with securities fraud, alleging he funneled over $150 million for personal use by disguising the transfer as business debt through a shell company.
5 RED FLAGS EVERY INVESTOR SHOULD WATCH FOR
These cases underscore that once problems emerge, investor capital is often lost and difficult to recover. The good news? Warning signs typically surface early—if you know where to look. Here are the key red flags to watch when evaluating any life settlement fund or manager.
1. Overly Optimistic Life Expectancy Estimates
If a manager uses overly optimistic life expectancy estimates, it can make both the returns and the price of a policy look better than they really are. Don’t hesitate to ask which life expectancy providers they rely on, how many sources they use and whether those assumptions are on the conservative side. A trustworthy manager should be open and transparent about this process.
2. Returns Are Based on Estimates, Not Actual Payouts
Be cautious of returns that sound too good to be true and of those based on projections rather than actual payouts. In life settlements, real returns only appear when a policy matures and the benefit is paid. Until then, numbers are only estimates.
3. Structures You Can’t See Into
If the investment structure is too complicated to explain clearly, or if a company relies on a steady stream of new investors to pay out earlier ones (like GWG did), that’s a red flag. It should always be clear what you own and how the business works. When in doubt, choose transparency and simplicity.
4. Conflicts of Interest and Related-Party Deals
Ask whether the manager conducts business with companies they also own or control. When the same party sits on both sides of a deal, there’s no independent oversight. This makes it easier to hide problems. GWG’s former chairman, for example, used a shell company he controlled to siphon funds from the firm.
5. Illiquidity Sold as Safety
As it stands, life settlements are meant to be held long-term. While the resale market is growing, most investors shouldn’t buy with the intent to sell for profit. If someone suggests you can easily cash out at any time, take a closer look and ask for specifics before moving forward.
KNOWING WHO TO TRUST WITH YOUR INVESTMENT
These fund failures illustrate that who you invest with matters as much as what you invest in. Each case traced back to optimistic assumptions, opaque structures and a lack of transparency. Every industry has its scandals—Bernie Madoff’s Ponzi scheme was the largest in history—and life settlements are no exception. However, investors did not abandon the stock market after Madoff’s scheme was exposed. The lesson is to remain vigilant and informed, not to avoid the asset class altogether.
Fortunately, you can protect yourself by buying policies directly rather than through intermediaries, using conservative life expectancy assumptions and diversifying across multiple policies so your returns don’t depend on a single outcome.
At i2 Advisors, transparency is at the core of our approach. Our turnkey process manages sourcing, valuation and premium administration, enabling you to invest with confidence. Learn more about how we can help you navigate the life settlement landscape.