Death future contracts still fraught with dangers

RIP-OFF ALERT: The attorney general of Texas has accused Life Partners Holdings (LPH,) a prominent seller of death future contracts, of stealing $300 million.

Death future contracts (aka viaticals) are a sketchy area of the investing world where people buy the rights to someone else’s life insurance policy and then hope they die in a hurry.

On a personal and ethical level, I’m opposed to death future contracts. But the field has also been fraught with business concerns over the years as well.

Here’s the way the sale of the policies works: If you have a policy and want to cash it out in the marketplace, a company would do actuarial on you to determine how much to pay. Then that company would turn around and sell the rights to your policy to investors.

In the past, Life Partners Holdings (LPH) had been scrutinized by the Securities and Exchange Commission for allegedly fudging on the life expectancy numbers in the info it disclosed to potential investors.

LPH used a contract doctor to analyze when people would die. But for policies from the year 2002, 95% of people who they told investors would be dead have now lived past their stated life expectancy. Same thing for 2003 and 2004.

When you’re being sold a weird investment like a death future, you have no way to know if the seller is representing that investment honestly because the market is unregulated. My advice is to just steer clear of them. If the economic disincentive is not enough, think of the ethical dilemma of hoping to make money on somebody dying in a hurry.