benefit securitization

The big ugly business of death

February 14, 2011: 12:17 PM ET

If you are alive, you will not have your life insurance to spend; if you have it to spend, you aren't alive. This is a dilemma that only an investment banker can solve.

By Moshe Silver, Hedgeye

life insurance

The rush to profit on the inevitable.

The baby boomers represent a great marketing opportunity – and hence a tremendous investment opportunity. One could have become very rich over the past six decades – and very predictably so – by investing successively in companies in the business of layettes, then diapers, then toddler shoes, school supplies, summer camp equipment, college anything… on to health clubs, plastic surgery, medical clinics and finally, hospice. So it shouldn't be so surprising then, with the boomers now in their 60s, the business of death would eventually emerge as a major investment theme.

Wall Street's death benefit securitization program – the cousin to its ill-fated mortgage securitization program -- has not been well received by the media but individuals have flocked to it. In fact, the Wall Street Journal reported recently that investors bought $12 billion in life third-party insurance policies in 2008.

But they're getting duped by bankers once again. The Journal tells of one Bruce Porter, an 81-year old rushed to the hospital when he thought he was having a heart attack. As he lay recuperating (it was not a heart attack) he was visited by his insurance agent who said his failing health was good news, as it now made his $6 million life insurance policy very marketable. Mr. Porter had purchased the policy with the express purpose of selling it to an investor – not a particular investor, just one of the purported army of savvy folks with open checkbooks looking to cash in on the ultimate Sure Thing. More

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