Life Insurance: The Media Gets It Wrong—Again
The New York Times has done it again—promoting viatical and life settlements by leaving out important information. Viatical and life settlements are cash paid to an insured who is terminally ill or elderly and who sells his or her life insurance policy. It can be a legitimate transaction, if the insured owned the life insurance for many years. It is not legitimate when someone applies for insurance with the intent of selling the policy, thereby turning it into a wagering contract for investors.
The New York Times ignored this when, in December 2006, a front page article, “Late in Life, Finding a Bonanza in Life Insurance,” promoted Stranger-owned life insurance (STOLI). It was the story of a retired financial planner who acquired life insurance, a multimillion dollar death benefit, with the intent of selling the policy. No mention was made that this is illegal, and not one letter challenging the article was accepted for publication. The article reverberated throughout the nation, broadcast via The Times syndicate. No doubt it lured other seniors to engage in life insurance fraud—as portrayed through three seniors in my novel, Accidental Felon.
Jump to August 2012 and the newspaper (as well as The New York Times Magazine) promotes viatical and life settlements again, this time with the focus on a very ill man–a prognosis of “two years left to live.” Similarly, in Accidental Felon, a very ill man sells his policy shortly before death. Unlike The Times article, my character was paid nine percent of the death benefit. This is based on actual events that occur far too frequently, documented through lawsuits filed by families of a deceased who was defrauded when he sold his life insurance.
The insured man in The Times article is young, only 36 years of age. His death benefit was half a million, but due to his age premiums for the two remaining years of life could not have been astronomical. It was not illegal for him to sell a policy he had owned for years. The problem is The Times never questioned the sale. The insured was offered only $250 thousand. After the broker argued with the buying company, the bid was raised to $305 thousand.
Apparently, the broker made no effort to get bids from other companies, which could have resulted in a higher payment for the insured. Running an auction is “traditional” in this industry (if such a word could apply to a relatively new industry). Why did the broker not run an auction?
It is likely the company that bought the policy pays very high commissions to brokers as a disincentive to seek competing bids. The money paid to the broker reduces the settlement paid to the insured. This, too, is in my novel—as one of the profit-making schemes attributed to a fictional life settlements company.
The reporter who wrote the story most often writes for Popular Science and Popular Mechanics. He appears to seek unusual topics and, since he is expert in none of them, he needs people to quote. Never doubting those he was told were “experts,” he inadvertently promoted a company driven out of Florida for fraud. Had he done original research, he would have discovered these facts on the internet.
The same lack of investigative or critical thinking skills led the reporter to refer to the broker as an insurance expert. If she were, she would have known and—if she had the best interest of the dying man as a primary concern—she would have told him he could have the insurance company split his half million death benefit into two smaller policies. Then he could sell one when his life expectancy was two years, and sell the other the following year–with far more money, due to a shorter life expectancy.
If he had no other need for cash, he could have kept the second policy for his heirs. Surely he did not need $300 thousand paid in one year. There is no way a man with a two year life expectancy could spend $300 thousand dollars in one year, unless he went to Las Vegas. Which is unlikely.
The article gave a quick nod to the negatives: “settlements still strike many people as creepy.” Only creepy? As to life expectancy, “the science of predicting death is imperfect and evolving,” followed by encouraging information poured into the reporter’s ear by–guess who? People whose affluence is derived from this industry.
Had the reporter read my nonfiction book, Viatical & Life Settlements: An Investor’s Guide, his story would be less exciting but more balanced. Nor would he have written as gleefully about predicting life expectancy—after reading details in the chapter researched and written by someone who is objective, who is a known critic of the industry and a consumer advocate for its victims.
Never once in the numbers the reporter cited for the amount of death benefits the industry purchased did he include the word, “estimated.” There is no proof to support the numbers. In fact, these companies frequently resell policies to each other. Are the policies counted twice, or thrice? With regulation after-the-fact (after fraud is investigated), there are no reliable figures. And, of course, the reporter did not ask for supporting documentation. The story was too juicy to litter up with facts.
Although the novel, Accidental Felon is not about the viatical and life settlements industry, it exposes many of the abuses not revealed by The Times. In the novel, a data entry clerk at a fictional life settlements company knew her employer invested in the deaths of the insureds and her pay check was the result of people dying, but she was unaware of fraud until after the FBI raided their offices. Although innocent, she is charged with being a co-conspirator. What she learns about her employer appalls her, and should serve as a warning to readers because it is based on actual facts.
The Times, by promoting illegal acquisition of life insurance, not only misleads the public but violates its own motto, “All the news that’s fit to print.”