That sounds pretty good, right? It’s everyone’s dream, a rich great-uncle that you never knew, and years later you find out that you were left a fortune in his will, and he’s been dead for years and a banker’s knocking at the door trying to give you a bag full of Krugerrands. Ah, those are the good dreams.
And the folks at Xcelerated Profits are taking full advantage of this dream of the misplaced inheritance in their latest ad … here’s how the opening reads:
“How to Collect $30,000 to $250,000 in “Unclaimed Inheritance Money”
* “Shep Greene of Hobe Sound, FL claimed $210,000
* “Joshua Schultz of Mystic, CT claimed $190,000
* “Kathy Leeman of San Diego, CA claimed $207,801
“Discover why Reader’s Digest calls these windfall payouts an amazing way to ‘Get cold cash in tough economic times.’ “
This is actually something that has gathered a fair amount of attention in recent months, as folks who have seen their retirement savings decimated are desperately hunting for cash under the mattress — so this ad is circulating from Xcelerated Profits, and there’s a fairly similar strategy being talked about by David Eifrig for his Retirement Millionaire newsletter.
I’m sure both of those guys know more about this stuff than I do, but I can at least explain what they’re really talking about.
So what is it? Is this cash really sitting out there somewhere.
Well … as usually, it’s a “kinda sorta maybe.”
Let’s look at the details as Marc Lichtenfeld teases ’em …
“When Hobe Sound, Florida resident Shep Greene first heard about a unique opportunity to collect ‘unclaimed inheritance money’ – he was skeptical.
“But after researching the situation further… he discovered regular folks just like him were collecting lump-sum payouts with no strings attached.
“So Shep, a 69 year-old retiree with unexpected medical expenses and a dwindling retirement account, decided to complete a simple payout request form…
“Within two months Shep Greene received a $210,000 check.
“Indeed billions of dollars of ‘inheritance money’ goes unclaimed every year… in the U.S. alone.
“Today, I’d like to tell you about a little-known way for you to collect from this ‘pool’ of money.”
And yes, I think that on the first day of copywriter school they must sit you down and tell you that as long as you put a word or phrase in quotes, it can mean whatever you want it to mean. These are, of course, not “inheritances” of any kind (though they will shrink any inheritance you might want to leave … and they are, of necessity, unclaimed).
So … some more details to try to understand what this is?
“It’s no wonder BusinessWeek says, ‘For people who need quick cash or want to supplement their retirement nest eggs, the [‘inheritance money’] can be a boon.’
“Just ninety-days from now you could receive your “inheritance check” for $30,000 to $250,000. “
Ah, so we get the good ‘ol quote from a well known magazine to make it seem more legit, that’s a standard technique (and of course, the quote from Reader’s Digest above, too, though perhaps that will seem to be a bit less of a solid financial source now that they’ve decided to declare bankruptcy).
Now, if we’re going to pay for a newsletter subscription to get this info it must be top-secret, hidden in some government file, or so complicated that we mere mortals couldn’t understand it, right? Well, that’s the next part of the ad:
“The Obscure 1911 Supreme Court Ruling That Makes This Possible…
“You may be wondering exactly what it is I’m talking about…
“It started in 1911 when Dr. A.H. Grigsby treated a patient named John Burchard.
“Burchard needed a surgical operation, but didn’t have the money to cover medical expenses. Dr. Grigsby performed the surgery but later in the year upon Burchard’s death he went to court to try collecting payment from Burchard’s estate.
“The case reached the Supreme Court, and decision GRIGSBY V. RUSSELL, 222 U.S. 149(1911), ruled that Dr. Grigsby could stake a claim to a portion of Burchard’s estate.
“The legal background of this case could fill a book. But here’s the long and short of it: This case cleared the way for people to claim forgotten “inheritance money.”
“And this obscure 98 year-old ruling set the precedent for the $16 billion opportunity my colleagues and I call ‘Unclaimed Inheritance Money.’
“By taking advantage of this opportunity today you could pocket $30,000 to $250,000 in the next 90 days.
“But if you decide this is for you, I encourage you to act quickly… the number of people making claims is growing fast.
“This opportunity could close to new claimants at any time.”
And did you notice that last sentence? It could close AT ANY TIME OH MY GOD HURRY UP AND SUBSCRIBE. Gotta get a little bit of urgency in there, eh?
OK, so that’s enough of keeping you in suspense — I can tell you that the Supreme Court opinion in Grigsby v. Russell (which they actually managed to cite almost correctly, something most of my students had trouble with) essentially declared that life insurance is an asset that can be bought and sold.
If you want the actual legalese, here’s a small excerpt from the syllabus of the opinion:
“The rule of public policy that forbids the taking out of insurance by one on the life of another in which he has no insurable interest does not apply to the assignment by the insured of a perfectly valid policy to one not having an insurable interest.
“In this case, held that the assignment by the insured of a perfectly valid policy to one not having any insurable interest but who paid a consideration therefor and afterwards paid the premiums thereon was valid, and the assignee was entitled to the proceeds from the insurance company as against the heirs of the deceased.”
So … we can now connect the dots. What was made possible and legal by this ruling was what is now known as the “life settlement” business, whereby people who hold life insurance can sell their policies to third party investors in exchange for needed cash while they’re still alive.
If this came to your attention at all in recent decades, it was probably during the “viatical settlement” wave that followed the first public awareness of the AIDS epidemic — the viatical term is usually used when folks have a terminal disease and the impending life insurance payout may be much closer (within a year or two), life settlements is a more typical term that investors and financial advisers use (and if you search “life settlements” on Google you’ll see hundreds of folks who want to offer you a quote for your insurance policy).
For AIDS or other terminally ill patients, you might have had someone who expected to only live for a few months or a year, who had no way to support themselves because they couldn’t work anymore, and selling a $500,000 policy that would do them no personal good for $250,000 in ready cash might have seemed like a great idea — from what little I know of the business, it got a little extra shady around then, and a business that most people already consider a bit ghoulish might have sunk in reputation a bit more.
Life settlements probably still has some shady characters, of course, but it seems to be pretty mainstream now. For healthier senior citizens contemplating selling their life insurance, it’s probably much more of a case of bulking up a sagging portfolio, keeping their house, or selling something that they no longer feel they need (ie, their kids don’t need the money, etc.)
So how do you profit from this? Well, if you have life insurance, you sell it to someone else for a lump sum payout — they go on paying the premiums, and when you die, they collect the life insurance payout. I’m sure there’s all kinds of paperwork, and there are probably some widely varying bids you’d get from these outfits, and perhaps they won’t want your policy at all, but that’s the basic mechanics.
Then they wait for you to die. And hopefully they don’t figure out a way to speed up the process — though that would be a good plot for a novel, eh?
Of course, if you don’t die, or if you live for an extra 30 years, or die in some way that negates your life insurance coverage, then you win!
Life settlements investors are essentially making actuarial bets just the same way as the insurance agent did who first sold you your life insurance policy — when are you likely to die, how much is the policy going to pay, how much of a return do they need to build in for a good profit, and voila! out the other end comes the offer for your policy.
In the end, it seems like it’s sort of like an extension of the concept of the reverse mortgage, which has also come into favor as senior citizens cope with life expectancy that might outpace their retirement funds — with reverse mortgages, you essentially sell your house but still live there; with life settlements, you get a portion of the financial benefit of dying without having to actually do so (well, at least not right away). Either way, I suppose it’s one way of benefiting from an asset that would probably otherwise benefit only your heirs.
From what little reading I’ve done, the general guidelines seem to be that most buyers of these policies want to buy from people who are at least of retirement age (60-70 or so), with policies of at least $50,000, and preferably substantially more. Depending on stuff like convertibility, current cash value of the policy, etc., it seems like payouts of somewhere between 20-50% of the policy value are probably common. And I have seen reports of folks being encouraged to buy insurance just so they can then sell it to a life settlement broker, but that sounds like it’s probably very often shady, and of more questionable legality, though I’m far from being an expert on life settlement law.
If you’re interested in learning more about the general concept of life settlements, that Business Week article that Lichtenfeld quotes is actually a useful source — it’s from a cover story that ran about two years ago, all about the “ghoulish” business.
And that’s about all I can tell you — this is still a pretty small business, at least when compared to life insurance in general, and while it’s pretty mainstream now I’m sure there are still plenty of ways to be a victim here … if you’re interested in life settlements please talk to a financial adviser who you trust and who can help you run the numbers, if you’re in the sweet spot and have the kind of nice big insurance policy that these folks drool over, I expect some folks will offer you substantially more than others.
And I really, really hope that all of my lovely Stock Gumshoe readers live to a ripe old age … so they can keep on reading … and, of course, that you’re all so flush with cash that you decide you’d rather name me your life insurance beneficiary, and that you never feel the need to sell anything that you’d rather keep.
Clearly, I’m far from an expert on life settlements — we can toss this on the pile with annuities, a pile I call “stuff that has too many flavors.” If you know more about this business or about the mechanics or returns that folks might expect, or just want to clarify anything I’ve bollixed up above, please feel free to share your thoughts with a comment below.
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