Betting on death: Stranger-owned life insurance raises ethical, legal questions
Senior citizen makes money at first, but later pays for it
12:21 p.m. Monday, March 10, 2008
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80-year-old Harry Jenkins has spent his life in the health and exercise business.
His wife, Anna, used to be Jack Lalanne's workout partner. They're in great shape.
A few years ago Harry's insurance broker came to him with an unusual deal; a free $10 million life insurance policy.
"He says Harry there's some new business going on out there. You fit the criteria," Jenkins said.
It is known as Stranger-Owned Life Insurance, STOLI, for short, in which older people can get cash while they are alive by allowing investors to insure them, essentially placing a bet on how soon they will die, the sooner the better for the investor.
Insurance companies say it will drive up the cost of life insurance and should be illegal.
"To turn it into an investment, you know a hedge fund owned by foreign investors, let's say, hoping, praying that you die is just an awful thought," said American Council of Life Insurers Spokesman Frank Keating said.
Twenty-six states from Maine to Hawaii are considering laws to regulate Stranger-Owned Life Insurance.
"Somebody out there is waiting for me to die," Jenkins said.
"I really had a lot of skeptical feelings about what was going on," his wife, Anna, said.
Harry did four of these deals, making about $600,000, but things got complicated. He had to pay income tax on the money he made, but also an additional $50,000 tax on mysterious amounts of interest that were not actually paid to him. And when he tried to buy out the fourth policy himself, he was told he would have to pay another $1.2 million in interest. Now, he's in a lawsuit over that fourth policy.
Thousands of older Americans have entered similar deals, and inevitable some believe they were misled.
"There's a lot of people that got hurt on this, big time, and I think it's wrong," Jenkins said.
Even though they did make some money, Harry and Anna have regrets.
"Forty-nine years I've been telling him to listen to me. And to trust my intuition," Anna said.
"I'll be the first guy to say it probably was a mistake," Jenkins said.
Because along with free life insurance, they also got was a headache that could last for years.
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