Saturday, December 16, 2006

One foot in the grave?

It may be your lucky day:

Marvin Margolis, an 80-year-old Manhattan financial consultant, is looking for investors willing to bet on when he will die.

Two years ago, Mr. Margolis bought a large life insurance policy. Now, he’s considering selling it to a group of investors, a deal that should give him as much as $2 million to enjoy in his final years. In return, the investors will get the policy’s $7 million payout when he dies — which they hope will be soon, so they can stop paying his premiums.

“This is a wonderful opportunity to use my body as an asset,” Mr. Margolis said. “I deserve to be able to benefit in some way from my age.”

But insurance companies aren't so happy:

Insurance executives, for instance, say transactions like Mr. Margolis’s may cripple their industry and make it harder for the average senior to buy life insurance in the first place. Insurers are worried because they count on many customers canceling their policies before they die, usually because their children grow up and no longer need the financial protection, their pensions kick in or premiums become too expensive. If far more policies result in payouts, the insurance business becomes much less profitable.

....Such policies are known as speculator-initiated life insurance, or “spin-life” policies. Investors estimate that spin-life policies worth as much as $13 billion will change hands next year.

The deals are so lucrative that older people are being wooed in every fathomable way. In Florida, investors have sponsored free cruises for seniors willing to undergo physical exams and apply for life insurance while onboard.

For insurers, such cruises are a financial Titanic. Over the next decade, the insurance industry could be forced to pay out unexpectedly more than $100 billion in death benefits as spin-life policies come to maturity, investors estimate.

....Life insurance companies, in particular, rely on policies lapsing before the policyholder dies. Last year, for instance, insurance companies reduced their financial exposure by $1.1 trillion when 19.8 million policyholders stopped paying premiums, according to the Insurance Information Institute. In comparison, the industry paid death benefits on only 2.2 million policies.

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