If you listen to sports talk radio in California, as I do, you’ve heard the ads. A firm called “Reliant” promising “10–12% returns” with “no market risk.” Sounds way too good to be true, right? That’s the range of return that Bernie Madoff promised. But, heck, who isn’t interested in great returns with no risk? So, after hearing the spots a few times, I Googled the company to learn more. No luck. Finding anything about the firm is hard — the name is so generic it’s impossible to figure out who’s really behind the scheme. And the ads have no detail on what the company actually does, just an 800 number to call. That’s a red flag — who runs expensive radio ads without an SEO strategy?!
The fifth or sixth time I heard the ads, curiosity got the better of me and I called the number (it’s 800–788–1000, FWIW. It only works when the ads are running, natch). What I learned was fascinating.
According to the well-scripted agent who took my call, Reliant offers investors a chance to buy fractions of a financial instrument called “life settlements.” According to Wikipedia, a life settlement is “the sale of an existing life insurance policy to a third party for more than its cash surrender value, but less than its net death benefit.”
Put another way, it’s a way to buy someone’s life insurance policy, then gamble on the timing of that person’s death. The sooner a person dies, the more money you make.
This investment isn’t for the squeamish.
How does it work? Let’s say a healthy senior has a $1m universal life insurance policy, and for whatever reason she wants to cash out. All she’s owed is the earnings accumulated by the policy (not the value of the policy itself). The insurance company is happy to fork that over because it comes to pennies on the dollar (the term for this is “cash surrender value”). Relatively new laws in California (and across most US states) let policy holder “make a market” for the policy — in essence, sell it to the highest bidder. The buyer then owns the policy, pays the premiums, and collects when the original policy holder dies.
Reliant, it turns out, is one of those bidders, and has made its business buying those policies for as little as possible. It then slices them into fractional ownerships and resells them to the public via radio advertising. Large financial institutions have been in the life settlement biz for years (no surprise there), but Reliant is making a market for “the average investor.”
If it all feels a bit strange, well, it is — morally anyway. It’s also perfectly legal. As long as the premiums on the policy continue to get paid, the insurance company is required to pay the death benefit ($1m in our example) when the original policy holder dies — even if that person no longer owns the policy. The game, of course, is to buy policies from people who are going to die soon . That keeps the cost of servicing premiums low and the returns on investment over time high.
As the agent on the phone put it: There’s one certainty in this world, and that’s that people are going to die. And thanks to our increasingly financialized world, something we’ll be exploring deeply as we grow our NewCo media offerings, there’s now a new way to profit off mortality. If it feels icky, well, welcome to the world we’re living in. If you think life settlements are strange, wait till you read Rana Foroohar’s upcoming book, focused on the financialization of our entire economy. I read it in manuscript, and it kept me up at night. And not in a good way.
Oh, and I did finally find Reliant’s website. Caveat emptor, as they say.