The most publicized firm in the life settlements business, Life Partners, is under investigation by the SEC.  Meanwhile, its investors aren't happy.

A recent Wall Street Journal article details the checkered history of the firm and its founder and highlights many of the risks of investing in life settlements, including bad life expectancy estimates:

In 2002, for instance, Life Partners brokered investments in 297 life policies. Actuaries say if life-expectancy calculations on a group of people are well done, half should die by their projected dates. But in 95% of these policies, the insured was still alive at the end of the life expectancy the company supplied to investors. Policies brokered in 2003 and 2004 show similar patterns.

Not to mention the troubling bio of the firm's founder and chief executive:

Mr. Pardo, 68, is a college dropout who became a decorated Vietnam War helicopter gunship pilot. He started a solar-heating business, American Solar King, that became a stock-market favorite in the early 1980s. The renamed ASK Corp. later filed for bankruptcy, and in 1989 the SEC accused it and Mr. Pardo of overstating revenue and profits. He settled in 1991 without admitting or denying wrongdoing.  The same year, he moved into the nascent life-settlement industry by founding Life Partners. Mr. Pardo found himself in the SEC's sights again in 1994, when it charged his new firm with selling unregistered securities. Life Partners won a federal-court ruling that U.S. securities law didn't cover its products

Read the entire Wall Street Journal article.