Life Settlements Market is Setback – More Evidence the Financial Sector Corrupts Everything It Touches

Ruling In Delaware Moves Unsavory Investments on Death Closer to Death

About 20 years ago, with the advent of the Aids epidemic, victims of that disease and other life threatening diseases with life insurance policies determined that they could sell those policies and use the funding to help pay for their medical treatment.  There was nothing wrong with this, in fact there was a lot of “right” with this.  In effort, the sale of the policy was a covered loan in which the desperate patient got money for life extending treatment and the lender got the assurance of a return of funds from the life insurance policy.



You See a Critically Ill Person
Wall Street Sees a Way to Make a
Fast Buck



Wall Street, as it does with many things, did not see this process as a decent and humane way to help seriously ill people.  It saw it as a way to make money.  And so it developed a new financial product.

During the boom years of the mid-2000s, some Wall Street firms began packaging policies into investments. Demand for the policies surged, prompting commission-hungry agents and other middlemen to fill the pipeline. Market experts estimate that thousands of people took out policies for quick flipping to investors between 2004 and 2008. The industry, like many financial markets, froze in 2008.

This was an investment everyone could understand.  An investor bought into a pool of policies, paid the remaining premiums and as the pool insureds died off, they collected a nice return on their investment.  Of course, the greed of investors and Wall Street firms led to abuses. Old or sick people were lured into buying policies, then immediately flipping them to investors. Here is a typical example

a $9 million policy issued in 2007 by Phoenix on the life of Price Dawe, then 71 years old, through a Delaware statutory trust. Mr. Dawe claimed a net worth of $14 million and annual income of $500,000 in applying for the policy for estate-planning purposes, court filings show.

Mr. Dawe died in 2010. As Phoenix investigated the death claim, according to the insurer's filings, it learned the GIII investing entity purchased the beneficial interest of the Dawe trust for $376,111 less than two months after the policy went into force. As for Mr. Dawe's alleged wealth, he actually had "negligible income and assets," the insurer's filings state.

So the good news is that a court in Delaware has ruled insurance companies can argue fraud, even after the normal two year period for protesting a policy has passed. 

The decisions arm the insurance industry with valuable ammunition for shedding what it argues are unsavory policies that could tarnish its reputation with consumers and lawmakers. . . The rulings also threaten to stifle a potential revival of the so-called life-settlement market, which already is reeling from a three-year downturn.

 

One now hopes that the Delaware rulings do indeed stifle the revival of the life settlement market, in fact we hope it kills it outright and that it does not have any life insurance coverage.