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Related: Editorials & Other Articles, Issue Forums, Alliance Forums, Region ForumsIt Has Come to This -- Close-to-Death Cash-Strapped Americans Selling Their Life Insurance Policies
http://www.alternet.org/personal-health/it-has-come-close-death-cash-strapped-americans-selling-their-life-insuranceWhen we think of innovative financial products, we probably think of credit-default swaps, collateralized debt obligations, and other ghoulish abstractions that we nervously half-remember from that last Michael Lewis book we read. We probably dont think of life insurance. But a fascinating new article in the New York Times Magazine gives a very informative tour through the life-settlements business: an emerging marketplace whereby people who need cash near what is ostensibly the end of their life sell their life insurance policies to a third party for a price.
Heres how it works: once a person decides to sell his/her life insurance policy, the third-party investor does a bunch of research, usually based on the the sellers medical records, to see how long the person is likely to live. (This is important, as the third party investor is on the hook to pay the sick/dying persons life insurance premiums until their death.) Then the seller and the investor agree on a price. Say were talking about a $500,000 life insurance policy, and a person with a two-year life expectancy; the investor might offer $300,000, in hopes that the difference will both cover the cost of paying premiums for the rest of the sellers life and leave room for profit.
As ghoulish as this sounds, the articles writer, James Vlahos, makes the case that this is in fact a pro-consumer innovation in the life insurance marketplace. He may be right; Im not sure. But what many commenters to the article really find ghoulish is the simple fact that we have such an eroded public safety net that folks are reduced to selling their life insurance policies for the sake of paying their medical bills and the other costs associated with old age. In an era of small social security payments, high medical costs, and a failed system of retirement savings, our once-proud system to prevent poverty in old age is reeling.
And indeed, what the life-settlements business really does is offer a way to convert death insurance into old-age insurancewhich was, sure enough, an important private market back in the bad old days before social security.
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It Has Come to This -- Close-to-Death Cash-Strapped Americans Selling Their Life Insurance Policies (Original Post)
xchrom
Aug 2012
OP
slampoet
(5,032 posts)1. No one cared 20 years ago when it was only AIDS patients doing this.
I seem to recall the tone in articles at the time feared it wasn't a good investment for the person buying out the policy.
xchrom
(108,903 posts)2. I hate remembering that.
My partner & I really tore through every cent we could find back then.
He's gone now.