This is one of the odder reads I’ve had lately, though it makes perfect sense that a market would have sprung up in this space: It allows the elderly and otherwise gravely ill to get cash now and ease their last days on Earth, and an “investor” gets a substantial payoff somewhere down the road. The topic arose due to a discussion in my province of whether these types of transactions should be made legal here: Serious concerns about preying on the old and ill, whether or not life insurance in general would shoot up as a result of this new market.
Right now, somewhere in Toronto, someone is dying. He has congestive heart failure and diabetes. He has spent time in the hospital, and almost passed away last year. It seems he is not long for this world.
That’s sad, of course. But for someone else in Toronto, his death will mean a windfall because this man has a $350,000 life insurance policy. Or, at least, he had it. He sold the policy some time ago for a fraction of its value. Now the buyer of the policy is in need of some quick cash and is looking to sell it again. Don Jones, an insurance broker in Seattle, is trying to facilitate the sale — asking price: $175,000.
If he can swing a deal, Jones will collect a handsome finder’s fee. The seller will get a quick, six-figure payout. And whoever buys the policy will double their money, just as soon as the insured man passes away. It would seem to be a win-win transaction — if a pesky ethical quagmire, and some thorny legal questions, didn’t come along with it.
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Life settlements, a booming, if somewhat misunderstood, multi-billion-dollar business in the U.S., are illegal in most Canadian provinces. All but four (Quebec, Saskatchewan, New Brunswick and Nova Scotia) have laws explicitly prohibiting trafficking in second-hand life insurance policies. And even in provinces where there are no laws expressly against life settlements, securities regulators are suspicious of them, which makes finding seed capital tricky.
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Critics — with insurance companies being foremost among them — say such a market is ripe for exploiting the old, the frail and the desperate. Not only that, many warn a secondary market would drive up insurance premiums for everybody else, since current rates are based on the fact that some policies will default.
Proponents, however, point out that life settlements provide insurance policy owners with financial options they wouldn’t otherwise have. Although most insurance companies already provide people the option of buying the policy back, life settlement advocates claim that people often get 400% more cash for their policy through life settlements than they would get from their insurers.
It’s a three page article that I’ve cut down to the little shown above. Click through for a full viewing.