by The Other Katherine Harris
The Other Katherine Harris’s blog
Jan. 1, 2008
Next time the vampire of estate tax “reform” rises, threatening to drain us of billions to satisfy the three families in a thousand who have to pay any, here’s a chunk of garlic that might help drive it underground: A secondary market in large life insurance policies has developed — which means any coverage not needed to cover tax liability can be offloaded now. At a huge profit.
While I was researching something else this morning, a fortuitous path opened to this little-known fact. As detailed HERE, an 83-year-old widow recently sold a $20 million policy on which she’d so far paid about $1.7 million. Its cash surrender value would have been less than half a million, but an investor coughed up $4.3 million and almost surely won’t have to wait long to collect nearly five times as much.
Both buyer and seller made out like bandits in the deal — and imagine how this newly contrived marketplace will sizzle, if more estate tax cuts are enacted, too. We might as well make that “if” a “when”, as far as the firm behind the press release is concerned (specialists in bringing such parties together). The Ashton Group predicts Congress will raise exemptions and slash rates sufficiently for “billions of dollars’ worth of existing life insurance policies to be sold over the next several years.”
Obviously, as with all these devious schemes that financialize paper, only the filthy rich can play (unless mutual funds start buying into them). Also pretty obviously, life insurance companies will soon wise up and stop selling gargantuan policies based on old statistics that show five of every six life insurance policies lapse before any payout is due. They’re on the hook for all extant policies, though — and bound to raise everybody’s premiums. Depending on how badly they’re stung, we could get stuck with the tab for another bailout to benefit the ultra-wealthy, too.
Adds extra dimension to the cause of opposing estate tax reduction, doesn’t it?
There’s also the niggling notion that this ghoulish market could expand, as tapped-out folks formerly on the upper end of middle class look to their life insurance as a life-raft for coping with debt they can no longer bankrupt out of. Not a pretty picture. Except of course to the blood-suckers. What do you bet they’d be pleased to buy it, never mind the prospect of destitute kiddies and widows? Death is something investors can bank on a lot more securely than subprime mortgage payments, particularly if the seller is getting on in years or suffering health problems.