In these tough economic times, some folks are using Reverse Mortgages to access the equity in their homes and get cash either for spending or to pay off their conventional mortgage. It’s an idea whose time has come; and not a bad option in some circumstances.
But even better, especially if you are further from your Sell-By Date and not old enough to qualify for a Reverse Mortgage is the Life Settlement agreement. Think of it as a way to tap the equity in your soul.
In this clever arrangement you take out a life insurance policy, and let someone else pay the premiums and eventually receive the death benefit. So what’s not to like?
“Life settlements” are arrangements that offer people the chance to sell their policies to investors, who keep paying the premiums until the sellers die and then collect the payout. For the investors it’s a ghoulish actuarial gamble: The quicker the death, the more profit is reaped.
But if you think that this is the end of the story, not so fast. The Wizards of Finance and Corporate America have once again figured out how to make a good thing even better. They like to call it financial innovation.
The first innovation was to ‘package’, or ‘securitize’ individual agreements into bonds backed by a CDO or Collateralized Debt Obligation, called “life settlement-backed securities“, or F2U Rio Linda, Death Bonds. You might recall that sub-prime mortgages were famously packaged as CDO’s, now sporting the fancy nickname Toxic Assets.
And in a wicked twist of fate it turns out that our friends at AIG may be one of the first major financial firms selling Death Bonds in order for them to, hang on, repay their TARP debt. So in a way AIG not only got some of your money, they’ve also got a piece of your soul!
This could be a good theme for a Country & Western ballad.
The next innovation involved a number of upstanding corporate partners. What came to light a few years ago was the revelation that more than a few companies had been buying life insurance on their employees (without telling them), which became nicknamed Dead Peasant Policies.
The companies contributed money to the policies, which then could be used to pay for a variety of company expenses. In addition, when employees, retirees and former employees die, the company receives tax-free death benefits.
You got a problem with that?
We try to make each post a Teaching Opportunity, so what have we learned?
- Contrary to popular belief, your value increases as you approach your Sell-By Date.
- Rather than fearing your final time on this earth, it’s now more appropriate to look forward to what we’ll call your Money Moment.
There you have it, negotiate in good faith.
[P.S. If you were confused by the phrase F2U Rio Linda, then hit this link.]
Thanks for keeping it light and cheery. I LOVE that they are using these CDO’s to finance the TARP payback. That’s Poe-etic.
Agreed, plus it brings a new perspective on ‘skin in the game’.