Life settlements, for the life insurance industry, is kind of like when you’ve been whacked in the face and it hurts, but the swelling and discoloration of the black eye hasn’t shown up yet.
Life settlements or viatical sales of life insurance policies has been around for 20+ years. Cloaked in some pretty lame arguments, life settlements, the selling of your life insurance policy to a third party for an immediate cash influx, are just about as smart and honorable on the part of the life insurance industry as sub prime mortgages were for the banking industry.
You know something is shady, something is wrong, when the folks that sell life settlements don’t include the beneficiaries, the family of the insured in the conversation. I’m not saying that beneficiaries have some innate right for Mom or Dad to hang on to the life insurance so that they can become enriched upon their parent’s death. What I am saying is that most people who are considering life settlements are being preyed upon by agents that know how to take advantage of someone who is financially challenged.
Why bring in family or beneficiaries? Because in most situations the financial challenge can be met by family, leaving the life insurance in place to do what it was designed to do. In most cases the decision to buy a life settlement is based on the emotion of wanting to take care of financial challenges with bothering anyone. Agents who specialize in life settlements know all about these emotions and they know all too well how to be there to help.
Now life settlements have become big investor news as your life insurance policy, now owned by someone else, is being bundled into funds that are being sold as investments. Forgive the gag reflex, but how sick is that? What has our country come to when we have hedge funds for people to invest in whose profit depends on people dying? How can investors really feel good when they see their return on investment go up, knowing that what that means is that more people died than expected?
And forgive my often expressed cynicism about life settlements, whether individual or bundled into funds, but this is America and capitalism is all about profit. Really, when you think of some of the big companies that have gone down beginning, let’s say, with Enron, what if they had large investments in life settlements. Do you think, I mean do you really believe that companies with all the moral conscience of a purse snatcher wouldn’t start paying say $1000 to have life settlement portfolios closed out by an untimely death? If a company could quietly spend $1000 with an almost instant $1,000,000 return do you really think that there wouldn’t be any consideration of taking that back alley? Folks. This is the same country that is throwing people out of their homes and cutting people’s jobs and all the while making sure that the corporate checking account is full enough to give some sick excuse for a CEO a bazillion dollar bonus.
I guess what amazes me is that this is just now becoming big news just because Wall St (another pillar of social conscience) is allowing hedge funds to be built around life settlements. It was bad news when they first hit the market back at the beginning of the AIDS epidemic. It has been bad news for decades as agents get filthy rich talking people into buying life insurance they don’t need just so they can turn around and sell it. It’s been bad news since they figured out how to finance that purchase for those who couldn’t come up with the money to buy large policies they couldn’t afford.
Bottom line. Life settlements are a black eye on the life insurance industry and a another black eye on our socially lost country. I get calls every week or two from companies that want to know if I will get on board the life settlement train and when they hear my opinion, I think they hear the outrage that is at the core of the part of our country that hasn’t given into sick greed.