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Treating death as a commodity
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Selma Mannheim, 86, of West Los Angeles says the payout from her life-settlement deal enabled her
to have the pleasure of giving money to her family.
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A growing industry involves buying, selling and profiting from life insurance.
By Marc Lifsher, Los Angeles Times Staff Writer
February 20, 2008
Robert Mannheim was stunned when he found out that strangers wanted to lend his
mother in West Los Angeles money to buy her a $2-million life insurance policy and
pay her premiums.
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The deal got better after two years: She would sign over her death benefits to investors
and collect $200,000.
FOR THE RECORD:
Insurance: An article in Section A on Wednesday on life insurance and the increased
popularity of life-settlement agreements misspelled the last name of a San Luis Obispo
attorney who said she was concerned about the marketing of the investments. She is
Barbara Guerena, not Guarena. —
The idea of leveraging the value of her newly acquired insurance into a big cash payoff
tickled Selma Mannheim, a child of the Great Depression, who knows the importance
of having money in the bank.
"I have no complaints because it did not cost me anything," she said.
Selma Mannheim is one of a growing number of older Americans and their relatives
who are taking advantage of a booming life-settlement industry that involves buying,
selling and profiting from life insurance policies.
Not everyone is enchanted with the idea of selling life insurance policies to faceless
investors.
"You ought to know who you sell to. You don't want Tony Soprano buying your life
insurance policy," said Newport Beach attorney Jay Adkisson, who writes about
financial fraud on an Internet blog called quatloos.com. "I don't like the idea of people
growing life insurance like so many crops."
http://www.latimes.com/news/local/orange/la-fi-lifesettlement20feb20,1,292430,full.story?... 2/27/2008
Treating death as a commodity - Los Angeles Times
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These agreements also have riled insurance companies and threatened their profits.
Buy, Sell & More
Investing in people's lives and collecting on their deaths is a growing enterprise. As
investors began to pool these investments and sell them as a package, these securities
soon attracted hedge funds, pension funds and institutional endowments.
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Page 2 of 3
Financial giants such as Goldman, Sachs & Co. and Bear, Stearns & Co., as well as a
unit of Warren Buffett's Berkshire Hathaway Inc., are backers.
Battles over these new securities are looming in state capitals and courtrooms across
America. Today, they will be examined in Sacramento, where the state Senate
Banking, Finance and Insurance Committee will consider this growing and largely
unregulated market in California.
"Enticing seniors with offers of free cash to allow the purchase of life insurance on their
lives for the benefit of third-party investors is wrong, and apparently not currently illegal
in California," committee Chairman Michael Machado (D-Linden) said. He thinks state
regulation is overdue.
The total face value of policies purchased for the secondary market rose to $6.1 billion
in 2006 from $2 billion in 2002, according to Conning Research and Consulting of
Hartford, Conn.
Experts are predicting that total market volume could hit $20 billion this year.
"This is a runaway freight train," said Frank N. Darras, a top California attorney
specializing in senior citizen issues. "Somebody needs to put brakes on it or we might
have a lot of people extremely distressed. The only folks making money will be those
swapping and selling and co-brokering."
Life-settlement providers stress that these agreements are a boon for elderly
consumers and an attractive investment for Wall Street. For years, they contend, life
insurance companies have been a monopoly, sitting back and collecting premiums on
policies that consumers allow to lapse.
Selma Mannheim, 86, said her life-settlement deal enabled her to have the pleasure of
giving money to her three children, five grandchildren and three great-grandchildren.
Her son, Robert Mannheim, a retired tax attorney from Agoura Hills, said he gave his
mother the go-ahead after carefully scrutinizing the proposal brought to him by an
investment advisor, who had done similar deals with acquaintances. "My brother and I
looked at it and said 'That's a winner!' " he said.
Traditionally, insurance companies have given consumers the option to give up their
policies and collect a small sum. But now policyholders can sell to investors for much
more money.
As a result, consumers may gain, yet insurance companies still have to pay the policy's
full value as a death benefit.
Consumers cannot buy an unlimited amount of life insurance coverage. Insurers set
limits on the coverage a policyholder can buy. This amount varies from company to
company and is based principally on the person's net worth.
As a result, critics of these life-settlement agreements warn that consumers who sell
too much of their coverage to investors might not be allowed to buy more insurance if
they need it later.
The burgeoning market in life-insurance-backed securities offers investors a relatively
safe bet, unaffected by gyrating currencies, soaring oil prices or shaky equities.
Larry Simon, chief executive of San Diego-based Life Settlements Solutions Inc., a
pioneer in purchasing policies for resale on the secondary market, said the risk for
investors was minimal. "You always get the policy paying off. That's the beauty of the
asset."
Critics, especially insurers, see these investments as a morbid way to misuse life
insurance and its promise of providing family security.
The investments also exploit seniors, drain money from their estates and expose
policyholders to the possibility of fraud, opponents contend.
Lawmakers and regulators in California also are concerned. Machado is considering
legislation to rein in one kind of life-settlement agreement that allows strangers to buy
and collect on insurance policies for others.
Insurance Commissioner Steve Poizner has taken no public position on these lifesettlement agreements. However, his department currently is upgrading its website to
http://www.latimes.com/news/local/orange/la-fi-lifesettlement20feb20,1,292430,full.story?... 2/27/2008
Treating death as a commodity - Los Angeles Times
Page 3 of 3
warn senior citizens against being victimized by strangers who offer them "risk-free" life
insurance deals.
Life insurance companies and life settlement promoters are gearing up for a highstakes battle at the state Capitol. The insurance industry is a powerful political force
and a large contributor to politicians' campaign funds. Life-settlement companies have
recruited three of Sacramento's premier lobbyists and hired at least one media-savvy
public relations firm.
Other states, meanwhile, are considering tightening their own rules on licensing and
sales practices. Both the National Assn. of Insurance Commissioners and the National
Conference of Insurance Legislators have drafted model statutes in recent years.
Pressure to regulate life settlements has been building with recent stories of abuses. In
Los Angeles, federal prosecutors last year indicted a pair of men for allegedly getting
investors to finance the purchase of stranger-originated policies for thousands of
members of an African American church. According to the indictment, the accused
pocketed most of the proceeds instead of buying insurance.
At least three life-settlement-related lawsuits are pending in state and federal courts in
Los Angeles. They include a high-profile action by CNN talk show host Larry King
against a Maryland-based insurance agent, who advised him to buy and almost
immediately resell a $10-million life insurance policy.
At a San Luis Obispo County senior center, crudely printed fliers recently circulated,
telling members that they could get as much as $50,000 from "investors that want to
speculate on our life expectancy."
Barbara Guarena, a San Luis Obispo attorney specializing in senior citizen issues, said
the hard sell gives her the willies. "I hate to see seniors make their lives into
commodities."
marc.lifsher@latimes.com
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http://www.latimes.com/news/local/orange/la-fi-lifesettlement20feb20,1,292430,full.story?... 2/27/2008