I’ve been very clear for a long time that I think life settlements are ethically wrong and, left unchecked, could cause irreparable damage to the tax advantages that life insurance now has.
The question really revolves around the question of insurable interest, does the person or entity who owns the insurance policy truly have a vested interest in the life of the person and more specifically, not just the death of the person. With investor owned life insurance, to be as clear as possible, the owners (investors) would really prefer that the insured died sooner rather than later. This is beyond a stretch of anyone’s imagination about what life insurance was and is really intended for.
Insurable interest has always been defined as (someone who) suffers a financial loss upon the death of the insured. Life insurance was created to cover that financial loss. How anyone can construe life settlements sold as investor owned life insurance meets the insurable interest threshold is beyond me.
While I’ll go a step further with that line of thought in a moment, it’s important to note that there are hundreds of lawsuits pending, including one very notable one in New York, that are questioning this very issue. Can and should life insurance be bought and sold as a commodity and should it be sold at all when there is no insurable interest?
Now that step further. This is the world according to Ed. We have all witnessed the horrendous and immoral doings of large corporate America over the years. Lying and stealing seem to be almost acceptable corporate practice. Let’s say that before a company like Enron bit the dust they had in their portfolio several billion dollars worth of investment life insurance. When things started going south, knowing just how low a company like that can go, who’s to say they wouldn’t start paying some hard working hit man $5000 a pop when their return on that was $1 million or $10 million.
Life settlement salesmen and life settlement companies will tell you that isn’t possible because the Enron like company never knows who they own paper on. I think when a company is crooked and desperate enough they most certainly can find that out. They will also say that the insurance on any one life is diluted over enough investors that the company might only receive a small amount for their $5000 investment in the death. So they lower the going price to $500 and maybe they only make $25,000.
Bottom line. When death=profit, that is wrong on too many levels to even fathom.