I’ve never minced words about what a horrible idea life settlements are. A life settlement is when you sell the ownership of a life insurance policy on yourself for some amount of money, and they are then the owner and beneficiary when you die.

Personally my stance has always included the fact that life insurance is always underwritten taking into account the mortality risk, but no one has done a mortality study on those who have sold their life insurance policies to a third party. Yes, secretly embedded in that sentence is the idea that if someone else has a vested interest in your death and that interest gets less valuable every year, who’s to say you won’t get whacked if profits are looking a bit too slim?

Of course the life settlement folks will put our minds at ease by telling us that these policies are sold to institutions and not to individual investors. Makes me feel better. I’ll bet institutions with TARP money can afford better hit men anyway.

But off the subject a little. Then there is the really stupid idea called premium finance coupled with a life settlement. There was a really great article yesterday that explains all the fun details better than I can and also breaks the news that those clients who have done it and the brilliant agents that talked them into it are in the process of getting hosed or are getting in line at the hosing place.

Bottom line. It all comes down to a deal too good to be true. You pay almost nothing for a policy for two years and then an investor pays you handsomely to take over ownership. Free money? If it sounds too good to be true…….

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