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Memo to: From:

Life Partners, Inc.'s Licensees and Investors Scott Peden President, Life Partners, Inc. May 3, 2011 FAQ on Life Settlements

Date: RE:

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Many of Life Partners, Inc.'s licensees and investors ask LPI about how many policies mature on time, how many go long, and how many policies mature early. Since LPI's life settlements are a unique investment, this document is designed to help answer those questions with some historical and projected data, and show how LPI's life settlements compare to other investments.

1.

How do life settlements compare with other investments?

Life settlements are a unique type of investment, unlike any other type of traditional Wall Street investment. Therefore, as much as there is a temptation to try to do so, they cannot be evaluated and compared in the same way as other investments such as mutual funds. No Management Effort As everyone knows, mutual funds, hedge funds or individual companies are business entities which are managed. The better that management is, the more profitable it will be and the more valuable the shares will be. Therefore, one key factor that analysts rely on to prognosticate the performance of management is historical performance and consistency. This is why the returns for mutual funds are often measured in one, five and ten year terms. In addition, the financial performance of mutual funds or companies affects every shareholder equally. If the fund made a handsome return that year, everyone in the fund during that time realized the same pre-tax return. If the fund lost money, everyone felt the loss in the same way. With direct fractional ownership (DFO) of life settlements through Life Partners, there is no managerial or entrepreneurial effort which generates profits for the investor. Therefore, in a DFO transaction, you actually own a discrete interest in a life insurance policy and are not relying on management by Life Partners in order to generate profits. Instead, you are purchasing an asset with a stated future value at a discount to its face value. The only variable is time which can be estimated, but not controlled. Now, lets compare the various features of different types of investments:

Mutual Funds/ Individual Stocks Source of Profits Profits depend solely on the efforts of managers High return potential Risk of substantial loss based on market forces and has been realized in recent years Performance over a period of time affects all participants in the same way Historical performance of debatable benefit to predict future performance

CDs No management risk return rate is contractually fixed Returns fixed Loss risk guaranteed up to $250K by FDIC

LPI Life Settlements Profits do not depend on post-transaction efforts time and discount are elements which result in profitability High return potential Risk of substantial loss is theoretically possible, but only if all insureds live substantially longer than expected loss risk can be calculated prior to entering into transaction

Return Potential Risk Potential

Impact of Historical Returns

Interest varies per contract which may change daily

Individual returns will vary for each policy, so the return experience of each client will vary

Usefulness of Historical Performance as Metric

Interest rates based on Fed policy which can often be prognosticated based on economic circumstances and statements of monetary policy by Fed

Return potential can be modeled for each policy, but estimations of individual life settlement returns cannot be extrapolated from macro-historic performance because sample size is not comparable

2.

How many insureds have exceeded their life expectancy?

We do not have a sufficient number of policies which have exceeded their life expectancy to be able to answer this question with a statistically meaningful response. However, the question assumes an undue reliance on the life expectancy estimation for profitability. Unlike other companies that place a high reliance on life expectancy accuracy for profitability, the key to profitability for LPI transactions is actually the discount at which the policy is purchased. It is important to note that LPI reviews hundreds of policies and only purchases those which have been normalized for most variables. So, no matter which policy is purchased, the insured will be a person of advanced age with some medical issues and without a family history of longevity. The policy will have been issued by a large, highly rated insurance carrier and the premiums will be between 3.5% and 6% of face per year. The acquisition cost will target a compounded return of 7-9% at the longer of the two life expectancies provided, but will remain profitable even if the insured exceeds this estimate by several years.

Thus, the focus should be on ROI potential and not on duration. The question to ask is whether you would be satisfied to have a portion of your investment capital in an asset which is illiquid, but has a high return potential, a stated future value, no correlation to the financial markets and where the risk of a total loss of investment is quite low. If you are unduly focused on or sensitive to the duration risk, then you are likely not suited for the investment, irrespective of the potential return.

3.

What is the average return on a life settlement?

As explained above, the return on each policy varies depending on the cost basis, the holding period and whether there is a return of any unused premiums from escrow or any additional premiums which were required to be paid in order to maintain the premium escrow. Because the return is different for each policy, the average return for all policies changes every time there is a maturity. In addition, it is not statistically valid to extrapolate what ones individual return experience would be from the average unless they owned a large sample size. It is accurate to say that, over the past 10 years, both the average and the median compounded return on investment has been in excess of 10%. While not a guarantee, this gives a clear and meaningful indication of the returns that previous purchasers have experienced. Since the median is also in excess of 10%, this indicates that the results are not skewed by one or two high returns which raise the total average. It should be noted that a 10 year sample includes some viatical settlements since we did not start purchasing life settlements for our clients until 2004. Also, only policies which were purchased and have matured over the past 10 years are used for the calculation. However, it is important to remember that each policy has its own return experience which affects only those purchasers of that policy. Therefore, each investors own individual return experience will depend on the performance of each policy in which they own an interest. You should utilize the ROI calculation software available to you to project what kind of returns are possible based on different circumstances. Notwithstanding the foregoing, some investors still want historical data. As stated above, a significant sample size of matured policies does not yet exist to be able to provide data which is both meaningful and accurate. However, we have utilized the actual results from early maturities and combined it with exceptionally conservative stress on the remainder of the sample to make the following projections:

Analysis and ROI Projections of 744 LS Policies Purchased between 1/2004 and 12/2010 with Maturities as of April 29, 2011
800

31 61

31

31

700

600

500

400

652

713

713

300

200

100

12.68%

8.14%

5.26%
PaidEarlyorwithinLE ActivePastLE ActivewithinLE

Actual M aturities with Actual M aturities with Actual M aturities with Remainder at Projected Remainder Projected at Remainder Projected at LE 2 yrs past LE or April 29, 4 yrs Past LE or April 29, 2011 2011

This chart shows a snapshot of the average compounded ROI for all life settlement policies purchased from 1/2004 12/2010. Much of the sample has not matured or exceeded the projected life expectancy. Therefore, these graphs project ROI based on actual experience with paid policies and using 3 different assumptions of projected maturity dates. While we recognize it is not realistic, it is assumed that there are no other early maturities in the sample. We believe this assumption provides the most conservative view of projected returns. Policies which matured within one year either before or after their projected life expectancy are classified as within LE. Policies which matured earlier than one year before their projected life expectancy are classified as paid early. There are currently no policies within the sample that have matured beyond one year past projected life expectancy. In the first column, the ROI for policies which are active, but not past their projected life expectancy (active within LE) was calculated assuming the policy matured on the date of the projected life expectancy. For those policies which were still active and past their projected life expectancy (active past LE), the ROI was calculated assuming the policy matured on April 29, 2011.

The second and third columns illustrate an average ROI assuming all policies which are currently active within LE or active past LE mature either at 2 or 4 years past their LE projection or, if the end of the projected life expectancy is earlier than April 29, 2011, then 2 or 4 years past April 29, 2011. For example, if a policy was purchased in 2009 with a 4 year LE, the ROI is calculated using a 2013 date. However, if a 2004 policy had a 4 year LE, the ROI is calculated using a 2013 or 2015 maturity date (i.e. 2011 + 2 or 4 years). It is important to note that the number of policy interests owned will affect the sensitivity to returns (either positively or negatively) and the actual return experience for each investor will vary depending on the return experience for each policy owned. Therefore, an individuals actual ROI experience may vary significantly (either positively or negatively) from these projections.