Buyer Beware – the” Unloading” of Failed STOLI Policies on an Individual Basis
This anecdote is a true story – I will not disclose others’ names to protect the innocent and regrettably, most likely, the guilty as well. This brief article is not of journalistic quality, I admit – I have not dug into and verified the facts. Take it with a grain of salt, if you must – but read on and judge for yourself.
We are brokers in the life settlement industry – the purchase of seniors’ life insurance policies by investors who wait for someone’s death to collect their rewards. This is a shameful place to be – an industry tainted with the stench of malfeasance – bid-rigging; mismanagement; misrepresentations; fraud; bankruptcy; even ponzi artists using the life settlements name only to defraud unwitting investors of their hard-earned money – the perps not even knowing the first thing about life insurance or life settlements, actually. We are worse than ambulance chasers. We thrive when others are sick. We pray for low life expectancies; we rejoice when others are about to die; investors rejoice when they do die.
Or some would believe or have you believe. In actual fact, we are business people, performing a service, doing the best we know how, representing those to whom we owe a fiduciary duty and moral obligation. We are really no different from you. We happen to have landed in an industry with a serious public relations problem. A funeral home is a business that might be said to thrive on death, but does not cause death, hasten death, and its shareholders certainly do not wish for death – death…. just is.
But when Joe walked through our door today, and we discussed his possible purchase of a $6mm life insurance policy that was offered to him by an agent in the life insurance business – a proverbial friend of a friend – I knew why we are sometimes viewed as basically dogs living in the gutter. Is that too harsh a description? Joe described the policy as being cheap – $140,000 annual premium per year. But he (the agent) said that the premiums might go up some – but he can’t know exactly how much. The current owner purchased the policy about two years ago from the original owner, six months after it was initially issued. The insured is 77 now, and has some serious health issues – and they would provide medical records, but there was no mention of a particular life expectancy, LE reports, or the like. The policy had never been shopped before – that is, offered out to the institutional market – this was a private sale – the owner is more interested in selling this privately because he thinks he can do a bit better this way, rather than paying institutional fees.
Joe gave us the name of the insured. We checked the case out with our local friendly provider who told us on the QT that the case was rejected by them. The meds were provided by a doctor who has been red-flagged as being, let us say, unreliable. It would also be impossible to obtain an LE report from at least one noteworthy LE company, because it also has refused to accept any meds from such doctor for the same reasons.
At the risk of being accused of profiling by geography or ethnicity, or both, the policy, agent and owner were all apparently from the same Borough, informally or purposefully blacklisted by some in our industry. If you are able to read between these lines above, it is an indication at least of reputational smoke, to which I refer, if not the actual burning bush, so to speak. I must say that while the reputation may be deserved from five miles up, unless one is a complete cynic (which I am not….today) then one must recognize that there are always exceptions to the rule and one should not cast aspersions on an entire class.
What was described, to me, however seems clear although admittedly only on a gut level – a STOLI policy purchased 2.5 years ago, on the basis of false medical records, with the intent of resale after the contestability tolled, which was not too long ago. Failing the sale of the policy into the secondary institutional market, said policy owner is seeking to unload this policy at retail.
It is no wonder why we get slapped around for being part of disreputable, corrupt and otherwise immoral enterprise. If you are approached about the purchase of any marketable in an asset class with which you are totally unfamiliar – such as Joe was in relation to life insurance – do what Joe did. Find someone who you trust and ask a lot of questions. Bottom line, with our advice to stay clear, we may have saved Joe about $1 million in premiums on a policy that, assuming it was not contested by the carrier on the basis of insurable interest or fraud, would not “mature” in any sensible investment timeframe.
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The reader is encouraged to attend Integrity Life Solutions, LLC Free CPE seminars for further information about this and other topics in the life settlement arena. Contact Susan Lubin, CFP at 973.275.1110 or susan@iLifesolutionsllc.com