Life Settlements versus Structured Settlements!

Quoting Senator Bill Nelson from 2002, “Buying lottery winnings and life insurance policies has become a routine practice. Buying veterans’ retirement and disability benefits, however, has the semblance of predatory lending…” OK. Let’s set two sick practices side by side and test our gag reflex.

I’ve never minced words about how I feel about viatical or life settlements, the practice of corporate purchase of in force life insurance policies either from people who no longer need the policies or people who are desperate for cash and succumb to that need, negating the future value of the policy to their family. At the very least it flies in the face of insurable interest when a life insurance policy is turned into an investment commodity. That isn’t what it was sold for and it’s a danger to the non taxable life insurance benefits that have helped so many families.

I’ll come back to that in a few minutes. Let’s talk about corporate buying of veteran’s pensions. Is it predatory? Does it border on loan sharking? Is a pawn shop that charges 20% interest per month predatory? The answer to that is clearly yes. I mean really! 240% annual interest? People that take their stuff to pawn shops are clearly in dire straights and lending them money on a collateralized loan at those kind of rates is direly stupid. They aren’t helping the people. They’re just shooting more torpedoes into an already sinking ship.

Corporate purchases of veteran retirement and disability compensation is just a few inches away from the same mentality. Whether the corporations are making a 15% interest on their investment as they claim or the 44.5% interest as many of their customers claim, they are still taking advantage of, preying on, our military veterans. And they require these people they are fleecing to have jobs, good credit, and life insurance as collateral. If you don’t have life insurance in force, they can arrange for you to purchase it through them or through dirtballs like EFinancial who give them a kickback.

So, they give you a small chunk of change, usually no more than $30-$40k, and they hold life insurance on you. This is where the government ought to step in and put these sleeze balls out of business. If a veteran needs a loan and want to use their benefits as collateral, the government could do it as a service at a reasonable interest rate. Without gouging our veterans the government could actually make a little modest interest income.

When viaticals hit the pavement running it was the same kind of horrid American greed, buying life insurance policies from people with AIDS for pennies on the dollar. There was certainly an assumption of an early pay out as they then owned a policy on a person that wasn’t likely to live long. And they had their victims (customers) right where they needed them. These people needed cash for treatment to hopefully extend their life a little, maybe even long enough that a cure would be found.

Life insurance companies put a stop to that practice when they instituted accelerated death benefits. This allowed people who were terminally ill to withdraw a portion of their death benefit before their death. In the beginning companies only charged a small administrative fee for this and then held the balance of the policy to be paid out in full to the person’s beneficiary. No pennies on the dollar. No high interest rates. No one owning a life insurance contract on you that, well gosh, if you happened to die unexpectedly, they make their money quicker. The quicker the payout the higher the return.

As long as I am free to post my opinion I will tell you that I think selling your life insurance to anyone who doesn’t have a vested interest in you living a long life is borderline dumb. Even if you don’t need the money you make from it and all you want to do is make a few bucks off an unneeded policy, hello! “The quicker you die the higher the return on their investment.” We live in a country where morals are all but gone. If you can’t imagine, say some billionaire having a bad year, owning hundreds of these investments and deciding that, gosh, there are a lot of people out there that would accidentally kill someone for $500, check your zip code. You may not be living in the US.

Bottom line. There are days when I really think we’re an awful nation. We buy life insurance policies as investments. We treat our veterans, not as honorable national servants, but as people we don’t like or care about. We treat our poor no better than trash. Got a little off my usual train of thought, but we’re a nation that needs to take a look in the mirror. If you have any questions or want to yell at me, call or email me directly. Let’s talk.