Whatever the name it’s given for a particular situation, death bonds, viaticals, investor owned life insurance, life settlement…..it all comes down to a large step away from what life insurance ought to be, and a blemish on the integrity of the life insurance business that may cause a ripple effect that will hurt the industry and the consumers.
A few examples might help you to understand. In a life settlement a person takes out a term insurance policy for $500,000 when they are in good health. Before the end of the term and the conversion period their health changes substantially for the worse. They can’t afford to renew the policy because of the higher price due to their age and health, so they sell it to a third party.
The third party, usually a large company, but more and more, small investors, then owns the policy and converts it to a policy that is guaranteed to outlive you. When you die they collect. Sounds like a good thing for you right? At least you got something back out of the policy. I’ll come back to that in a minute.
Then there is investor owned life insurance. People actually take out life insurance for the express purpose of selling the policy. This is a little trickier, because they purchase the policy in good health and sell it while they are still healthy. The investor is truly speculating on your death. While a rather lengthy article, the whole idea of speculating on someone else’s death is well covered in a Business Week article from late July.
The problem I have with the whole scenario, no matter what the circumstance, is that there has never been a mortality study done on this type of policy. The insurance business is based on mortality tables and they have let this practice slip through without a review.
Please bear with my assumptions, but I am assuming that everyone reading this is human, and we all have some understanding of human nature. Take this as an example. The numbers are big, but when it comes to investor owned life insurance, this is a small deal. A businessman has a $5,000,000 term policy that he took out in the prime of his life. Got the best rates. Now he’s 70 and in poor health. A bout with cancer and a heart attack. He decides his family is well off enough, that when he is offered $500,000 cash for his policy, well, why not. So he sells the policy. The new owner converts the policy to a permanent policy with a premium of $240,000 a year. Well, the former business owner gets his second wind, and keeps on ticking. Meanwhile the investor is getting in deeper and deeper $240,000 at a time.
One year the premium comes due and the investor is short, and frankly is starting to think it was a bad idea. Human nature! Is he going to scrape and borrow another $240k hoping the old guy dies in the next year, when for $5000 he could probably find someone that would ensure that he collects $5,000,000. Sounds crass? Seems like a reasonable possibility given human nature.
Bottom line. I just don’t like the idea of a stranger owning a life insurance policy on me, my family, friends, or anyone else.
August 14th, 2007
My goal for following the ABC show Fat March has been to bring attention to the fact that people can get life insurance at affordable rates even if they are overweight in most instances. I also wanted people to see, as the participants drop weight, what a difference it can make in the cost of their life insurance.
From my first post last week you may remember that I laid out the basis of the quotes as being what one could expect due to weight alone, with no health issues. All quotes are based on $250,000 of 20 year term insurance. In all cases I am using the best possible underwriting in the industry to make sure the prices are as good as it can get. I would also like to correct the starting weights that I used for the participants. I took those weights from www.zap2it.com and they were close, but not accurate.
There are, at this point, just 10 participants remaining with Shane and Kim not making it past the first week. I was sorry to see Shane get voted off. I truly hope he will pick up another avenue of weight loss that is a little less brutal. Of the 10 remaining participants, the following is their starting weight and their current weight after having walked 150 miles, followed by their original life insurance quote and their current quote. It’s important to understand when looking at rates, that rates don’t go down pound by pound. A rate class can often span a 20-25# range, so even though significant loss has occurred, it’s possible to remain at the same rate until more weight is lost. That was not the case this week as everyone made headway.
1. Michael started at 319 and is now 286. Start $735, Now $605.
2. Chantal started at 250 and is now 236. Start $535, Now, $471
3. Will started at 472 and is now 441. Start uninsurable, Now $619
4. Wendy started at 242 and is now 223. Start $575, Now $477
5. Anthony started at 433 and is now 396. Start $560, Now $500
6. Sam started at 382 and is now 351. Start $613, Now $553
7. Jami Lynn started at 236 and is now 218. Start $430, Now $356
8. Loralie started at 241 and is now 222. Start $381, Now $331
9. Shea started at 289 and is now 272. Start $355, Now$310
10. Matt started at 389 and is now 355. Start $613, Now $525
Will had this comment after the first round of quotes that he posted on myspace.com, “So this one guy has a blog about life insurance. For some reason, he thought it would be interesting to tabulate the life insurance rates for the Fat March contestants. Very expensive for everyone, but according to him, me and Shane are the only two that are UNINSURABLE!!!! I thought that was funny as ****.
Wonder if I’m insurable now, lol
Well, the answer is yes. I know that for younger people especially, it is hard to consider something like life insurance seriously, but someday the reality of being uninsurable could have a real impact on a person and their family. I think it is awesome what all of them have accomplished, and the adversity they have overcome.
Bottom line. It appears that weight issues can be overcome in what appears to be a fairly brutal manner. The good news is that with each loss of weight comes a healthier life and lower life insurance rates.
August 14th, 2007
