![]() ![]() In addition, allegations of fraud relating to the sale and marketing of these products were widespread. These transactions were known as viatical settlements, from the Latin word viaticum or "provisions for a journey." However, over time, viaticals became less profitable due to medical advances that extended the life expectancy of AIDS patients. ![]() ![]() Transfers of insurance policies grew significantly during the 1980s, when AIDS patients and other terminally ill policyholders sold their life insurance policies to obtain cash to offset mounting medical bills and improve the quality of life in their final days. Russell 1 established that it was a policy owner's right to transfer an insurance policy, thus opening the door to life settlements. In 1911, the United States Supreme Court case of Grigsby v. In addition, a case study highlights an example where an FDIC insured institution's involvement in SLS transactions contributed to its failure. This article provides an overview of the development of the SLS market and discusses the risks associated with these transactions to financial institutions, investors, and consumers, including the potential for fraud. As morbid as this may sound, life settlements are a growing market and have garnered considerable interest on Wall Street. Essentially, the investor is betting on mortality by taking a financial interest in another person's demise. If the death benefit exceeds the sum of the purchase price plus the aggregate future premiums and any other fees (all appropriately adjusted for the time value of money), the investor will profit if not, the investor will suffer a loss. For an investor, the potential profit depends on the purchase price and the amount of future premiums paid to keep the policy in force. The investor becomes responsible for paying the future premiums and, upon the death of the Senior, receives the policy's death benefits.Īn SLS may appeal to a consumer who can no longer afford the premiums or is strapped for cash. Bankers should be aware of the substantial risks associated with any involvement with these products, and that absent specific authorization from their primary federal regulator any investment in them would be impermissible.Īn SLS is a transaction in which an individual, generally between 65 and 79 years of age (Senior), sells his or her life insurance policy to a third-party investor, usually through a broker, for an amount less than the policy's face value, but greater than the net cash surrender value. In recent years, Wall Street firms, brokers and financial advisors have stepped up efforts to interest consumers and investors in a unique market segment - Senior Life Settlements (SLS), which when packaged into securities are sometimes known as "death bonds." As outlined in this article, while these products may offer brokers and other middlemen the opportunity for high commissions, they carry significant risks to consumers and investors. ![]()
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |