Death bond

Death bonds are securities that are formed from a number of life insurance policies that have been purchased from their original owners by investors and pooled into bonds ^[1].

Advantages

Death bonds are considered to be a relatively low-risk investment because everyone will eventually die, and the fact that many of the individual life insurance policies have been purchased from individuals that are terminally ill. Multiple policies are pooled, which reduces the risk of a decrease in the yield of a policy due to an individual living longer than expected.^{[citation needed]}

Disadvantages

There is a risk that an insurance company will disqualify a policy if the original owner failed to disclose a pre-existing condition.^{[citation needed]} The industry is also considered^[who?] to be poorly regulated, and death bonds are not currently rated by any major organization.^{[citation needed]}

History

Death bonds are related to the viatical settlements that became popular due to the AIDS epidemic in the late 1980s. Generally, viatical settlement companies buy policies from individuals, and then sell them to hedge funds or investment banks, who transform the policies into securities.^{[citation needed]} The market for death bonds has grown quickly in recent years, from nearly nothing in 2001, to around $10 billion in 2005 ^[1]. Many states^[which?] are currently attempting to introduce or tighten regulations on death bonds ^[2]. Moody's and Fitch might^{[original research?]} begin to rate death bonds from larger companies in the near future.^{[citation needed]}

Criticism

Death bonds have been heavily criticized by many on the left and others opposed to pure capitalism. It has been alleged by these critics that it is immoral to profit off of an individual dying earlier than expected, and that the lack of universal health care in the United States causes many individuals to be pressured into selling their life insurance by wealthy corporations due to an inability to pay medical bills.^[2][3] Companies with connections to organized crime could buy death bonds,^{[original research?]} and make a profit by murdering the original owners. This assertion is, however, only a theoretical risk, because the buyer of the bond does not know either of the original policyholders. Many^[who?] also allege that these bonds are highly speculative, and a combination of massive fraud and unexpected losses in this industry could cause^{[original research?]} another financial crisis similar to that caused by the real estate collapse ^[4].

References

1. ^ ^{a b} Goldstein, Matthew (2007-07-30). "Profiting From Mortality". The McGraw-Hill Companies Inc. http://www.businessweek.com/magazine/content/07_31/b4044001.htm. Retrieved 2009-09-14. 
2. ^ ^{a b} James, Andrea (02/17/2008). "Rules proposed for 'death bonds' Life insurance policies sold to third parties". Hearst Seattle Media, LLC. http://www.seattlepi.com/business/351662_deathbond18.html. Retrieved 2009-09-14. 
3. ^ Ames, Mark (09/10/2009). ""Death Bonds": Wall Street’s Shocking New Plan to Reap Billions off Dying Americans". Independent Media Institute. http://www.alternet.org/workplace/142531/%22death_bonds%22:_wall_street%E2%80%99s_shocking_new_plan_to_reap_billions_off_dying_americans/. Retrieved 2009-09-14. 
4. ^ Fitzgerald, Jay (09/10/2009). "Latest Wall St. scam? Death insurance bonds". http://www.bostonherald.com/business/general/view/20090910massachusetts_life_insurers_on_high_alert/. http://www.bostonherald.com/business/general/view/20090910massachusetts_life_insurers_on_high_alert/. Retrieved 2009-09-14.