Your Money For Your Life: Selling Your Life Insurance for Cash May Just Be The New Retirement Fund

Takepart.com

For the elderly and terminally ill, cash is often hard to come by. Unable to work, or aged out of the job market, many experience a loss of freedom due to rising medical costs and depleted 401Ks. Enter the “life settlements business,” a somewhat ghoulish practice profiled in the New York Times Magazine.

Termed a “viatical settlement” for the terminally ill, or a “life settlement” for seniors, close-to-death policy holders sell their life insurance to a third party for an immediate cash payout. That third party, known as a life settlements broker, then assumes monthly payments on the policy and becomes its beneficiary, receiving a large cash sum when the original policy holder dies.

According to the article, life settlement brokers, such Opulen Capital and Lifeline Program, are essentially reaping the rewards of betting on the patient’s quick death. When presented with the opportunity to purchase a person's life insurance policy, the broker takes ownership of that patient’s medical records, discusses his condition with his doctors, and talks to the patient himself to determine how much longer he most likely has to live. The reason for this is simple and significant―the longer the patient lives, the longer the broker has to maintain premium payments, which eat into his final profit. Therefore, patients with only several months to live are the most “valuable” while those with say, five years left to live, are less so.

Once a close proximity to death is established, the broker and seller negotiate a price. Alternet.org explains it like this: “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.”

Reaping financial gain by betting on a person’s rapid demise may be unpalatable to many, but advocates of the practice say it’s an unfortunate characteristic in a situation that’s otherwise wholly beneficial to the elderly and terminally ill. According to the NY Times Magazine article, more than two-thirds of all policy holders don’t finish making their premium payments before death anyway, therefore nullifying their policies. The reason is because often their immediate need for cash outweighs the need for future monetary payouts to surviving loved ones.  However, by selling the policy through a life settlements broker,  people who need larger funds to pay off a mortgage, hire hospice care, or just have more money for daily expenses can have those needs met and live out the remainder of their lives more comfortably.

And the brokers don’t always collect on their bets. Patrick Satterthwaite, who had full blown AIDS and a two-year life expectancy in 1994, sold his life insurance policy for $250,000. He tells NY Times Magazine he spent the money on jewelry, cameras, and trips around the world. Decades later, due to advances in AIDS treatment, Satterthwaite is a robust 64-year-old, still very much alive (though he says the money is long gone.)

Is the life settlements business a creative way for our elderly and sick to stay financially secure, or another reflection of a broken society that’s failed to properly take care of them?  Let us know your take in the Comments.

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A Bay Area native, Andri Antoniades previously worked as a fashion industry journalist and medical writer.  In addition to reporting the weekend news on TakePart, she volunteers as a web editor for locally-based nonprofits and works as a freelance feature writer for TimeOutLA.com. Email Andri | @andritweets | TakePart.com

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