From time to time an idea comes across my desk that I find compelling. So I decide to share it with clients and those of you who might become my clients. And while this blog is not supposed to be a commercial, meaningful retirement income is a very real problem these days which explains why I’m writing about it here.

Three points come to mind that seem to justify my talking about this idea:

One is that interest rates today are very low and a meaningful income from investments is hard to find.

Two is that the Federal Reserve is committed to keeping interest rates low going forward.

Three is that what came across my desk has, in my judgment, a reasonable risk profile and pays you 7% net.

Most people I talk with and advise are essentially conservative when it comes to their money. Many were burned by what happened in 2008-2009 and what we are now calling the “great recession”. All are essentially sitting on the sidelines waiting for interest rates to return to “normal” so they can experience an income they can live with.

The nature of this investment is called a Renewable Secured Debenture. These are publicly registered corporate debt offerings, secured by the corporate assets of the offering company. If those assets are questionable, then you have to be doubly careful before you decide to invest.

In this case, those assets consist of life insurance policies purchased by the offering company that insure the lives of unknown individuals across the country. There is a huge and largely unknown market in existing life insurance contracts, a market that has existed for many years, largely unregulated, and not popular with the life insurance industry.

However, when the owner of a contract no longer has a need for the policy or for whatever reason cannot pay the premium, a legitimate option is to sell the contract, take the proceeds and do something else. Meanwhile, the new owner continues to pay the premium and sooner or later, the insured person or persons fails to wake up one morning and a claim is made to collect the death benefit.

All this sounds kind of morbid, but from a financial perspective, makes a lot of sense. The trick is to find contracts for sale that are issued by well rated companies, pay a reasonable price to transfer ownership, and have the resources necessary to continue the premiums to a logical end. If you can do that, from a financial perspective, it makes sense.

In 2009, according to the American Council of Life Insurers, consumers lapsed and surrendered $752 Billion in life insurance policy benefits. From an insurance company perspective, this was pure gravy, since they no longer had to pay out when someone died, while having collected premiums on those policies from day one.

If you have a pot of money to put to work, and you have a network of people scouring the country for those contracts, you can be very selective, offer to purchase a contract and give the existing owner cash now when their only other option is to walk away with nothing.

The company behind the Renewable Secured Debenture has purchased over 30,000 of these contracts since 2006, contracts that either have or will eventually pay the newly named beneficiary $1.4 Billion dollars. That’s the source of the income that an investor can expect to receive if they elect to participate.

Yes, there are risks here. The life insurance company could experience difficulty and not be able to pay the death benefit, for example. Other bad things could happen. But with a minimum investment threshold of $25,000, this is something to think about.