Til Death Us Do Part? The Growing Market Of Buying Life Insurance

An American couple that were duped into allowing an insurance agent to look at their medical files has sparked debate in the life insurance industry.

The agent approached Goldwyn and Sylvia Schroeder and gave Mr Goldwyn $1000 to complete a questionnaire. The signed document actually gave the agent permission to view Mr Goldwyn’s medical notes. Mrs Schroeder was offered a life insurance policy that would pay out to a stranger.

Mrs Schroeder said: “They said if they took life insurance out on me, they would give me as much as $60,000 to $120,000.”

Selling life insurance policies has become more popular since the eighties and is called ‘life settlement’. The person selling the policy will receive a lump some while alive and the investor will receive a payout when the seller dies.

Investors frequently offer to buy policies from the terminally ill because buyers are more likely to get a better return if the insured dies sooner as this will avoid the effects of inflation.

In America this is a multi-million dollar industry and the UK is also investing in the market.

Shepherds Investment Company have a facility where investors can buy into a fund which purchases life insurance from dying people. Those suffering terminal illness can sell their policies and get a lump sum of 60% to 80% of its value provided they have between 6 and 36 months to live.

Max Symonds, of Shepherds, said: “Some people find it morally unacceptable but others work on the premise that this is an asset. All you are doing is releasing cash from it in the same way you are when you sell a house.”

Traditionally life insurance is bought to secure a family’s future if one of them dies. Different kinds of insurance offer varying levels of cover. A common kind is term insurance where the policy pays out if the insured dies within the length of the contract. If the insured outlives the contract then no money is received.

Whole-of-life policies are another kind where the insured receives money whenever they pass away. Premiums for these policies are often higher than for term insurance because of the guaranteed payout.

Investment life insurance allows the lender to invest money in the stock market on the insured’s behalf and these consequently have an element of risk about them.

The insurance industry is aware that some individuals take out their life insurance in order to sell it at a later date and this is not frowned upon.

Colin Jackson, director of independent financial advisors at Baronworth Investment Services, said: “Although the trade may seem unpleasant it could have a vital role to play for some. If the choice is selling the family home or trading in a policy the latter option is generally quicker and far less disruptive.”

The Association of British Insurers warns that selling life insurance is not a benefit for all.

Leonie Edwards, from the Association, said: “People in this sensitive position need to look at the financial health of the whole family particularly those that are due to inherit. Put simply, it would be sensible for them to take unbiased financial advice.”