Life Settlement Schemes Could Show The Way To A Different Subprime Flop

By Author: Jennifer McClelland
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It looks like one of the things that has always been seen as a cinch could be coming back to bite investors. Life insurance businesses have been offering policies to individuals for years and premiums frequently ascend as the insured starts to grow old.

An investment conspiracy that has popped up in the last few years is when a person who is insured cannot afford the premiums or is looking to cash out a life insurance policy which he or she has been paying on, a person will come along and purchase it for a fraction of the payout and sell it off to investors who will likely pay the premiums until the original insured being passes away.

There have been in excess of a dozen life-settlement scams to come under scrutiny since 2008. Life settlements acquire capital by promising excessive returns. The company also gains the awareness of other senior people who have empathy for the policy holders that have tried to cash out. And so, there have been a lot of businesses prepared to take advantage of those people.

Like when the market for securities became bloated and backed by houses created the subprime mortgage ...
... mess, the marketplace for life settlements has produced a jump in counterfeit insurance policies titled STOLIs or stranger-originated life insurance. These STOLIs are unlawful and start with a life insurance agent who is also a life-settlement insurance broker. The agent talks a senior citizen into accepting out a big life insurance policy and wines and dines them. Then the agent agrees to pay the premiums and the ownership of the policy is transferred to investors.

Once more, the problem with these STOLIs is that they are unlawful and could endanger the policyholder from being able to collect any insurance in the future. Some chilling statistics are that over 50% of life settlements right now were on policies which were under 4 years old. The cause for the increase and the large amount of settlements on policies which are under 4 years old is the STOLIs. These policies come out to colossal losses for the insurance businesses also and could potentially wound the insurance businesses to the mark where they are incapable to pay out genuine insurance claims.

It appears as though the administration is taking note. Last month Senator Herb Kohl headed up a unique committee on the problems associated with life settlements. The group meeting ended with the IRS and SEC being contacted to speak regarding gaps that are missing in legislation in life settlement actions. The SEC has decided to look into the issues facing the business. Due to this activity, it appears as though the marketplace has calmed down a bit.
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