Life

Wall Street Can Sell Bets on Your Life

Wall Street banks and other firms can sell bets that you will die prematurely.

“You can bet your life” or shorten to “you bet your life” or shortened further to “bet your life” or shortened even further to “you betcha” are versions of the same slang. While the short versions are usually applied to trivial assertions, the more extended versions are sometimes used to emphasize certainty on issues of importance. In 2008, Vice Presidential candidate Sarah Palin used the phrase “you betcha” to cloak her statements with a frontier authenticity. She was Governor of Alaska but chose to re-enforce her rugged bear-hunting image rather than her administrative experience and grasp of global issues.

Of course, you can bet on your life. Life insurance companies are in the business of taking you up on such bets. It is a common-sense wager for both you and the insurance company. They provide money to support your family if you die prematurely; they make money if you live beyond the policy’s term or your life expectancy. However, besides taking a gamble that you will live at least as long as expected, the life insurance company factors administrative costs and a profit into the premium. With life expectancies rising, life insurance companies also get to collect additional tips before paying out benefits. Therefore, supplemental life insurance is not usually a sound investment strategy for other financial goals.

Strangers can also bet on your life–as an investment strategy. The stakes are still your life, but you are not at the craps table in this case. The dealer at that craps table is a company that buys and sells life insurance policies. These companies do not just build in a modest cost factor for administration and a reasonable profit. Unlike a life insurance company, they don’t care how long you live or their long-term credibility. All they have to do is buy your life insurance policy and then entice an investor at the craps table to place one bet that you will die soon enough for the investor to make a profit on your death. Each year you live beyond the paid-up premiums requires the investor to pay additional life insurance premiums on top of the original price he paid for your life insurance policy. The investor hopes you die ASAP. (Criminals might help the process along-if they know whose life they need to shorten to collect.) The dealer, on the other hand, doesn’t give a damn if you live to 100. He has made a handsome profit on the one-time sale of your life (insurance policy).

Actually, it’s been true for a long time that a person can buy a life insurance policy on life besides their own life. In 1911, the Supreme Court decided that a life insurance policy was property and thus could be bought and sold. There are good reasons to buy a life insurance policy on the life of a business partner. Through a “Buy-Sell Agreement,” the proceeds are used to pay off the deceased partner’s heirs. Relatives often buy a small life insurance policy on the life of someone whose funeral they might be responsible for. Some parents purchase life insurance policies for their children because they might not be able to get insurance later in life because of a medical condition. Ownership of such policies is typically transferred to the child after he is responsible enough not to cash it out for a fancy car or a gambling trip to Vegas.

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