It Has Come to This — Close-to-Death Cash-Strapped Americans Selling Their Life Insurance Policies
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
By John Gravois
When 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 don’t 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.
Here’s 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 seller’s 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 person’s life insurance premiums until their death.) Then the seller and the investor agree on a price. Say we’re 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 seller’s life and leave room for profit.