Death Bond?

Do you know what Death bonds are?
According to Matthew Goldstein in a recent edition of Business week: “Death bonds may be the most macabre investment scheme ever devised by Wall Street.”

I was first hinted about these bonds when it was proposed to me by an investment company. It was part of the package offered as Insurance policies buy back. I further investigated the issue and found out that one of the options in the Insurance policies buy back was Death bonds.   

How a life Insurance Policy becomes a Death Bond?

A person, typically 70 or older, who wants to cash out of a life insurance policy, hires a “life settlement” broker to find prospective buyers. The buyers keep paying the premiums until the sellers dies, and then they collect. The up-front payout to the seller varies widely, from 20% of the death of the death benefit to 40%.

A whole business is organized around a chain of professionals ranging from the broker, investment banker or hedge fund, investor and bond rater to ensure the death bonds are fabricated and marketed.

For sure the owner of the Insurance holder will one day die. The question is when? Actuarial studies will forecast very well the date and determine the up-front payout.

How ethical are the Death bonds?