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Health Care

Banking on Death

A few days ago, the NY Times ran a story about the latest bright idea from Wall Street:

The bankers plan to buy "life settlements," life insurance policies that ill and elderly people sell for cash -- $400,000 for a $1 million policy, say, depending on the life expectancy of the insured person. Then they plan to "securitize" these policies, in Wall Street jargon, by packaging hundreds or thousands together into bonds. They will then resell those bonds to investors, like big pension funds, who will receive the payouts when people with the insurance die.

Basically, it's the same thing that Wall Street applied to risky mortgages, and that worked out so well.  This time, however, the key variable is not the likelihood of people repaying their mortgages, but rather their lifespan: "The earlier the policyholder dies, the bigger the return -- though if people live longer than expected, investors could get poor returns or even lose money."

Is it unreasonable to worry that death panels will have new fans if these bonds become as popular as the mortgage backed securities were?  And will Wall Street cease to invest in advances in medicine that prolong life.  Or perhaps the backers of these bonds are already banking that those very things will be the inevitable result of moves currently being made in Washington.

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Discussions - 3 Comments

I heard about this five years ago. It has been going on for that long already, mabye not the securitize parts though. Some low lifes made tons of money of this gaming of the system already. taking out huge policies on elderly people then paying the premiums and waiting to profit on their death. It is one of the best examples of systemic corruption in our society. Why would the companies allow the sales of such policies in the first place, i'm sure they helped some guy get a quota and a bonus is why.

I do not think that is currently legal, Brutus. Whoever holds an insurance policy must have an actual interest in the life or death of the person. This is to prevent tontines and things like that.

There is something else, but its name escapes me for the moment, which was developed for those with AIDS and enables you to sell your beneficiary interest in your insurance policy for immediate cash. You know you are going to die and you need money, right now, for all sorts of life things. You have no one who needs your benefit at your death more than you do right away -- no heirs, as is often the case with homosexuals. Selling your death benefit gives you ready cash. Old people can do that, too, I suppose. Or someone with terminal cancer might find that useful.

Or is that sort of arrangement what you mean?

No, I mean insurance policies bought by seniors then sold to firms who paid the premiums and then collected the payout. I know this because someone I knew from college had a parent who was doing it and raking in huge amounts of cash literaly calling it "hitting" on the day someone died and they got to collect. The ederly got a nice cut in this scheme upfront so it was basicly just defrauding the insurance companies and driving up everyone else's rates. That was five years ago or might be illegal now but I know that it was going on and that major corporations were buying these multi million dollar policies.

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