Sunday, September 06, 2009
Stranger-owned life insurance
These contracts are abortions, and I'd like to personally adjust the actuarial outlook for any of these Wall Street scumwads trying to push these.
Why? Well, we have insurable interest laws for a reason. Do you really want a sociopath like Bernie Madoff owning a substantial interest in wanting you dead?
But let's put aside the obvious perversity in granting Wall Street a windfall when they kill you. Let's just look at the math- the math the New York Times misses:
The primary purpose of life insurance is death benefits. DEATH BENEFITS. Why? To protect widows, orphans, and business partners. That's it.
When an insurance company sets its premiums on a block of business, they have to take into account the expected lapse rate. A certain percentage of all life insurance contracts will never pay a death benefit - because they either lapse or get cashed in well prior to the death benefit. Indeed, term insurance is DESIGNED to lapse without paying a claim. This is part of why term is so cheap... the premiums are well below the expected mortality for any given age group. Because of lapse rates. This is part of why young families and small businesses can afford the protection they need.
When you have third parties buying up life insurance... parties whose primary interest in the insured is identical to that of a corpse-eating zombie - they will keep policies in force that would otherwise have lapsed or surrendered. Lapse rates will fall. Premiums will rise. Life insurance will become less affordable. And families and small business will have to make do with less protection. Dividends fall on par whole life contracts. further raising premiums neccessary for a given level of protection. Seniors will have to pay longer before dividends offset premiums. Some won't be able to. And we will have forgotten why we have life insurance to begin with: To protect future widows, orphans, and dependents of small business owners from unexpected financial catastrophe due to death.
This is one asset class we can definitely do without.
Splash, out
Jason
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.
Why? Well, we have insurable interest laws for a reason. Do you really want a sociopath like Bernie Madoff owning a substantial interest in wanting you dead?
But let's put aside the obvious perversity in granting Wall Street a windfall when they kill you. Let's just look at the math- the math the New York Times misses:
The primary purpose of life insurance is death benefits. DEATH BENEFITS. Why? To protect widows, orphans, and business partners. That's it.
When an insurance company sets its premiums on a block of business, they have to take into account the expected lapse rate. A certain percentage of all life insurance contracts will never pay a death benefit - because they either lapse or get cashed in well prior to the death benefit. Indeed, term insurance is DESIGNED to lapse without paying a claim. This is part of why term is so cheap... the premiums are well below the expected mortality for any given age group. Because of lapse rates. This is part of why young families and small businesses can afford the protection they need.
When you have third parties buying up life insurance... parties whose primary interest in the insured is identical to that of a corpse-eating zombie - they will keep policies in force that would otherwise have lapsed or surrendered. Lapse rates will fall. Premiums will rise. Life insurance will become less affordable. And families and small business will have to make do with less protection. Dividends fall on par whole life contracts. further raising premiums neccessary for a given level of protection. Seniors will have to pay longer before dividends offset premiums. Some won't be able to. And we will have forgotten why we have life insurance to begin with: To protect future widows, orphans, and dependents of small business owners from unexpected financial catastrophe due to death.
This is one asset class we can definitely do without.
Splash, out
Jason
Labels: Crime, finance, insurance, investing
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