A New York and New Jersey Lawyer Who Represents Policyholders and Beneficiaries in Life Insurance Denial Cases

The Wall Street Journal has an article out that focuses on stranger-oriented life insurance policies. To the uninitiated, these type of policies are purchased by companies on the lives of “strangers”–usually the elderly–and sold in fractional shares to investors. Some have said these type of life insurance policies could become the next financial bubble in the wake of the housing implosion.

According to the article, one such investment company, Life Partners Holdings in Waco, TX, has made large fees from these transactions, but has also underestimated the life expectancies of people whose policies it invests in. When this occurs, the investors must keep paying the premiums and wait longer than expected to receive a death benefit payout.  And, of course, a low-ball life expectancy is what attracts investors in the first place, who believe they will soon receive a return on their investment.

However, when life expectancy is inaccurately forecast, the investment return is lower than initially forecast.  And this does not occur once in a blue moon for Life Partners, but rather, in 95% of cases the insured was still alive at the end of the projected life expectancy.

Life Partners has hired a doctor in Reno, NV who reviews 33 to 66 cases per working day and is paid $270,000 annually by the company. He also gets paid an extra fee if Life Partners purchases a policy–giving him an incentive to make policies attractive which translates into making a low forecast for life expectancy.

Interestingly, Life Partners was listed at the top of Fortune magazine’s 2009 list of fastest-growing small companies.

Many consider it distasteful for people to be able to invest in life insurance policies held on the lives of strangers, the equivalent of betting on someone to die. At the very least, the life settlement industry should be regulated, not only for how it markets to investors and forecasts life expectancy, but also how to persuades people to sell their life insurance policies to these companies.

Read here for a NY Times blog post on this article.

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