I’m really proud that we scooped the NY Times by 3 months on a story they published today.
And while we called them Death Bonds, the Times’ headline beats around the bush:
Wall Street Pursues Profit in Bundles of Life Insurance
On the other hand the Times article is very in-depth and up-to-date. When we wrote about this new ‘investment vehicle’ back in June very little information was publicly available. All we could do was predict that this would become a big business for Wall Street. And it looks like it is going to be huge.
After the mortgage business imploded last year, Wall Street investment banks began searching for another big idea to make money. They think they may have found one.
The bankers plan to buy “life settlements,” life insurance policies that ill and elderly people sell for cash — $400,000 for a $1 million policy, say, depending on the life expectancy of the insured person. Then they plan to “securitize” these policies, in Wall Street jargon, by packaging hundreds or thousands together into bonds. They will then resell those bonds to investors, like big pension funds, who will receive the payouts when people with the insurance die.
The earlier the policyholder dies, the bigger the return — though if people live longer than expected, investors could get poor returns or even lose money.
Either way, Wall Street would profit by pocketing sizable fees for creating the bonds, reselling them and subsequently trading them.
But with all the anti-Wall Street hoopla that this publicity will generate, I’ll reiterate what I said originally and which is lost in the Times’ article. It’s not such a bad idea for a number of people near retirement who have had their savings decimated. Here’s what I said:
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.
[But be really careful, you are dealing with the Financial Devil.]
I’ll offer these (slightly updated) teaching points to folks considering the option:
- Retirees and Bond Buyers beware; you are nothing but a commodity with a Sell-By-Date.
- Contrary to popular belief, your value increases as you approach your Sell-By Date.
- Retirees, 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. And if you seriously consider getting involved either as an investor or the seller of the insurance policy, make sure to read that Times article!