Sean Drummey - Life Insurance Recommendations

Best Indexed Universal Life (IUL) for retirement income: How does AXA Equitable measure up?

November 22, 2011

4:29 PM

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Cash accumulation, Cash Value, Guideline level premium, In Your 20's or 30's, In your 40's, Increasing death benefit, Increasing death benefit for cash accumulation, Indexed Universal Life, Internal rate of return, IUL, Maximum cash accumulation Indexed UL, Maximum cash accumulation IUL, policy illustration, Transamerica Life Insurance Company

Which is the best Indexed Universal Life (IUL) carrier for tax-free policy loans for retirement income? AXA Equitable has been in 2011 a consistently leading seller for Indexed UL. Let’s compare AXA side-by-side with other carriers to see how it performs. AXA product features include four index options. But beyond reviewing specs like rate caps and guarantees, the most useful way to evaluate carriers is to run policy illustrations using the the same premium and death benefit and compare projected returns.

The Indexed UL structure employed here is to overfund premiums with the minimum amount of death benefit to stay within IRS rules for tax advantaged life insurance. Then in retirement income take the maximum amount of tax free loans while still retaining a lifetime death benefit.

This Indexed UL strategy is an alternative for someone in their 30’s, 40’s and 50’s to directly investing in equity markets for retirement. IULs allow you to take advantage of market gains without the downside risk.

Here’s what it looks like for a male age 44 putting in $25,000 a year for 20 years, and then starting at age 65 taking the maximum out in tax free policy loans for retirement income for the next 20 years, while retaining at least a $100,000 death benefit to age 121. The death benefit starts at about $540,000 for each carrier and increases for years 1 – 20.

Carrier	Cash Value Year 20	Death Benefit Year 20	Loan Amount Years 21-40	Cash Value Year 41	Death Benefit Year 41
Lincoln	1,072,791	1,611,714	145,602	826,476	1,115,403
North American	1,144,104	1,683,029	147,248	658,775	981,056
Minnesota Life	1,100,898	1,655,898	137,217	584,737	876,987
John Hancock	1,085,171	1,323,908	139,719	614,556	913,093
Transamerica	1,065,637	1,630,637	95,000	215,254	346,582
AXA Equitable	995,284	1,534,207	86,402	98,473	212,604
Aviva	972,524	1,527,524	120,188 * *yrs. 21-31 only	83,677	204,366

I quoted AXA Equitable’s S & P 500 current rate which assumes 7.55% which is below the 8% plus range of S & P 500 rates assumed by other carriers, and that does have something to do with its lower cash value and death benefit accumulations on the chart at year 20.

Regardless, AXA only uses a variable loan rate which is currently illustrated at 3% policy yeas 1-10 and 2% thereafter. The rate is the greater of 3% or published monthly average Moody’s Corporate Bond Yield. Guaranteed not to exceed 15%. They do not offer a fixed rate.

Since those loan payouts are not competitive with Lincoln’s 5% fixed rate or higher variable rates assumed by the other carriers, AXA Equitable does not appear be competitive. Best way to find out which carrier is right for you is to request that I email you free quotes in the form of policy illustrations.

Carriers & Products quoted:

Lincoln National Life Insurance Company: “Lincoln LifeReserve Indexed UL (2011)”
North American Company for Life and Health Insurance: “Rapid Builder IUL”
Minnesota Life Insurance Company: “Eclipse Indexed Life”
John Hancock Life Insurance Company: “Indexed UL”
Transamerica Life Insurance Company: “Freedom Global IUL II”
Aviva Life and Annuity Company: “Advantage Builder Series IV”
AXA Equitable Life Insurance Company: “Athena Indexed Universal Life”

call Sean (910) 328-0447
email: spdrummey@gmail.com

Disclaimer: Information and quotes are current and accurate to the best of my knowledge on November 22, 2011. Product features and rates are subject to change. Quotes are non-guaranteed projections based on current interest rates and cost of insurance. Tax information is general information only. Please seek professional tax advice for personal income tax questions and assistance.

Indexed Universal Life (IUL) compared to a ship’s journey

by Sean Drummey

November 17, 2011

10:38 AM

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California, Cash Value, Equity Indexed Universal Life Insurance, Estate Planning, Indexed Universal Life, Internal rate of return, IUL, Modified Endowment Contract, policy illustration, Variable Life Insurance, variable universal life, VUL

Think of IUL as a means to achieve desired goals: to build cash value and to provide a death benefit. It is like going by yacht across the Pacific from California to Tahiti. This is a long journey, under many weather conditions, and this vessel is particularly designed to be safe and to reach its destination.

Prior to this life insurance that captured stock market, equity, returns was a more perilous journey. Variable Universal Life, a VUL class yacht, was favored. It is a sleek craft with the potential of performing very well (direct stock market participation), but like a yacht without an engine, it has proved to be risky for loss of cargo (cash value) and to capsize and sink (lapse).

So along came Indexed Universal Life as a safer alternative. It is like a powered yacht. Call it a IUL class yacht. She is backed by the ship builder (carrier) with no direct participation in the stock market. She has a sail or multiple sails (Index Account). Sails are designed for use when the winds are favorable (bull market) to build up the cargo (cash value) and ship’s value (death benefit). If there is a typhoon (bear market) approaching, the ship’s owner can use the engine instead (Fixed Account). If there are varying winds or doldrums, the owner may use both sail and engine (Participation Rate). The owner must decide in advance which mode to use for a period of time (Segment). This segment is generally one year. When the segment is over, the yacht owner is awarded for its performance (Interest Rate Crediting ) that increases the value of the cargo (cash value) and yacht (death benefit).

Now this IUL yacht has a very sturdy deck (Floor). Generally this deck is totally protected against leakage (0% market losses). It may even a raised deck (1% or higher Floor). As with a double hull, there are also guarantees in place for the ship not to sink (lapse). These guarantees may be for a set period of time like 10 years, 20 years or for life.

There are, however, certain restrictions placed on the ship’s speed in favorable conditions. The height of the mast is limited by the ship builder (Cap) or the top mast lowered (Spread). The yacht owner may gain extra by increasing the volume of sail (additional premiums). There are however certain rules as to how much sail is permitted (IRS rules for Modified Endowment Contract or MEC).

With an Indexed Universal Life cash value is built higher by increased premium contributions, and by gauging the direction stock market performance. Ideally, when the market is in an upward trend, the owner has directed premium into a high performing index, and when the market is in a downward trend, premium is directed into a fixed account. Regardless of choice or performance, the policy is protected against any losses by the floor. It is similar to a powered yacht that sets the maximum amount of sail with favorable winds, and uses the engine when conditions are unfavorable. There are various possible coverage goals. Some may use an IUL for early cash value accumulation for retirement, others can use the cash value for premium payments in retirement and estate planning.

Keep in mind when reviewing Indexed UL products
Just as yacht makers may brag about the boat’s sails, engine and design, life insurance carriers will promote their Cap (e.g. 13%), Fixed Account guarantee (e.g. 3%), Floor guarantee (e.g. 1%) and other bonus features. What is not evident is the product’s cost of insurance, expense and policy charges, the ship’s drag, how that affects the performance over a long period of time, especially 20, 30 or 40 years out.

How to Evaluate Competing Indexed UL Products
Fortunately, you don’t have to buy this IUL yacht after just reading the specs and trusting that it sails well. Request from the agent a policy illustration to test the product’s projected future performance. This will simulate how load and expense charges affect policy values, and compare that side-by-side with other carriers. This will help determine the all important internal rate of return. It’s similar to computer modeling a yacht race factoring each boat’s design, tonnage and various wind conditions. The carrier’s financial strength and viability is another important consideration because cost of insurance and other expense charges are subject to change, and you are also selecting which carrier will perform best and deliver the best results over time.

Sean Drummey
Contact for a free quote
Phone: (910) 328-0447
Email: spdrummey@gmail.com

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Indexed Universal Life (IUL) comparisons for cash accumulation and retirement income

by Sean Drummey

November 10, 2011

4:38 PM

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Age 65, Cash Value, Equity Indexed Universal Life Insurance, Indexed Universal Life, Internal rate of return, policy illustration, policy loan, Retirement income

Here’s a side-by-side comparison of two Indexed Universal life (IUL) products with a focus on cash value accumulation and retirement income. This post compares Lincoln National‘s “Lincoln LifeReserve Index UL (2011)” to North American‘s “Rapid Builder IUL”. North American in my prior comparison outperformed Minnesota Life and John Hancock’s IUL products.

I will not give here a detailed look and the product features of each IUL, as for example, Lincoln’s cap on its 1 Year Point-to-Point is currently 13%. I will focus on the projects results of where affected by their internal rate of return, how the fees and expense charges affect the policy, assuming as much as possible apples-for-apples comparison: same death initial premium and death benefit. North American assumes a 8.30% return on its S & P 500 point-to-point; Lincoln assumes 8.45%, so these policies run fairly close in their assumptions. For an agent or a prospective buyer, reviewing full illustrations to see how this internal rate of return affects the policy in 20, 30 and 40 years, and by comparing values side-by-side with competing carriers is a very useful analytical tool.

Here are the assumptions:

44 year old male, best health rate, puts in $25,000 a year premiums for 20 years, then no further premium contributions. Structure minimum death benefit, here a starting face amount of $538,923, and still qualifying at tax advantaged life insurance under IRS rules for a modified endowment contact (MEC). In the next 20 years draws out the maximum in loans, which are not subject to taxation, for retirement income, and still target a $100,000 death benefit at age 120 or over. The index is S & P 500 annual point-to-point.

Each quote comes with a full illustration that charts a lifetime of policy values year by year. Here are some benchmarks for comparison:

Age 64 (year 20): cash value accumulation
Age 65 to age 84 (years 21-40) retirement funds, i.e. policy loans
Age 85 (year 41) death benefit amount

Carrier	Cash Value Year 20	Death Benefit Year 20	Loan amount Years 21 – 40	Cash Value Year 41	Death Benefit Year 41
Lincoln	1,072,791	1,611,714	145,602	826,476	1,115,403
North American	1,144,104	1,683,042	147,248	658,775	981,056

What became noteworthy and crucial in the comparison were the loan rates and rules of each plan. North American offers a choice of loans at a fixed or variable rate. The variable rate is based upon Moody’s monthly bond average yield , which for October, 2011 was 4.60%. North American, presumably because the current rate is historically low, assumes by default a 5.60% rate for quotes, which I also used here. This run down will give you a look how the rate has changed over the last century. North American’s rate has a 4.00% floor and a 10.00% cap on their variable loan rate.

Lincoln had only one option a guaranteed fixed rate: 6% for policy years 1 – 10, and 5% for years 11 to age 100. What was noteworthy is how strongly the fixed rate returns performed against the variable rate. Other carriers including North American offer a fixed rate loan option but the loan payout numbers are not nearly as good as Lincoln’s. (Also interesting to note Lincoln had an option for the loans/withdrawals to be monthly, quarterly, semi-annual or annual, and the loans values were higher selecting the monthly option.)

For cash value accumulation strategy and to use policy loans for retirement income, the parameters of this comparison, Lincoln has a more favorable IUL product than North American. It would generally be much preferable to lock in a well performing fixed rate over the span of decades than be subject to downside risks of fluctuating rates.

For example, compare Lincoln fixed loan rate to North American with changes to the loan rate:

$145,602 5.00% fixed rate Lincoln

$147,248 5.60% variable rate North American
$130,920 6.60%
$124,853 7.00%
$110,775 8.00%
$92,123 9.00%
$70,351 10.00% maximum

$107,777 fixed rate Standard Policy Loan option North American

As you can see, North American variable loan rate would have to consistently stay at or below 5.60% in order to outperform Lincoln. That’s unlikely.

Carriers & Products:

Lincoln National Life Insurance Company: “Lincoln LifeReserve Indexed UL (2011)”
North American Company for Life and Health Insurance: “Rapid Builder IUL”

Image source: Wikipedia Commons

Disclaimer: Quotes were revised on 11/22/2011, and are correct and accurate to the best of my knowledge. Product features and rates are subject to change. Please contact the carriers directly for full details on these products reviewed. Tax information is general information only. Please seek professional tax advice for personal income tax questions and assistance.

Locating lost life insurance policies in Missouri

by Sean Drummey

November 8, 2011

5:06 PM

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Claims, Consumer, Missouri, Policy holder, Policy Review

The Missouri Department of Insurance now provides a locator service for lost life insurance and annuity policies.

People who believe they are beneficiaries, as well as executors and legal representatives can file a search request form with the Department of Insurance. Completed forms should be notarized and include a copy of the original death certificate before being mailed to the department.

Requests will be forwarded to Missouri-licensed life insurance companies each month. Insurance companies will then contact the beneficiary if a policy is located.

For policy holders here are some tips on making sure that your policy claim gets paid.

Scuba diving deaths North Carolina’s Megalodon Ledge

by Sean Drummey

October 18, 2011

11:20 AM

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Age 59, American General Life Insurance Company, In your 40's

The Wilmington Star News reported two scuba diving deaths off the North Carolina coast one Thursday, October 13th and another on Sunday, October 16th. I’m following this sport more closely because my 10 year old son is strongly interested in diving and in particular in diving for megladon shark’s teeth. He has read Steve Alten‘s Meg and has become a fan of the writer and his series on megladons. Both deaths involved hunting for these prehistoric fossils at Megalodon Ledge. Donald Zantop, 59 years old was described by his wife as an experienced diver. Amy Pieno, age 48, was the co owner of a Outer Banks Diving in Hatteras, NC. Presumably as a dive shop owner, she was very experienced. Megalodon Ledge’s average depths are 100′ to 110′.

How safe is diving? Statistics indicate it’s relatively safe, yet diving’s environment does not allow for much margin of error, especially the deeper a diver goes. I’m just about convinced that most hazardous sports are for those who are in shape and fairly young. But hey, it’s your life, and as long as your only risking your own, it’s your choice.

Our family has had these discussion before about hazardous sports. Several years ago a kid in the area, about 10, was doing a motorcross event, did a face plant and died. I’d rather hold off allowing my boys do certain hazardous activities until they are 18. Then being of age, I can shake their hand and wish them well. Their fate is up to them. If as a parent I allow them to do something hazardous under age 18 and something goes wrong, part of the guilt is going to be mine. Always.

Divers and life insurance
Over the years I quoted life insurance for scuba divers and have several as clients. Rates depend on the average depths of dives and frequency. Best available rates are possible if diving is limited and not too deep. Over 100 feet is generally considered deep. The most important thing is to admit diving on the application. Some applications are more favorable than others on the look back period on diving history. They all ask if you intend to dive in the future, usually in the next 2 years. Prudential, Genworth and American General come to mind as carriers that offer the most favorable underwriting. Prudential in particular is favorable.

Universal Life vs guaranteed UL what works best depends on age

by Sean Drummey

October 12, 2011

2:53 PM

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Age 68, Cash Value, Estate Planning, guaranteed universal life, In your 40's, In your 50's, In your 60's, In your 70's, In your 80's, Universal Life

Universal Life, UL, has many different life insurance product designations. One of the most basic distinctions is whether it is a UL or a Guaranteed UL.

Guaranteed Universal Life (Guaranteed UL)
With guaranteed UL there is a lapse protection guarantee: as long as you pay your premium on time, coverage is guaranteed. Lifetime guaranteed UL is guaranteed to age 121. Great coverage: inexpensive, straightforward, easy to understand. Put premium payments on bank draft and forget about it. Is there a catch? No. Well, perhaps in a few ways: guaranteed UL’s lack flexibility on the adjusting the premium amount, the lapse protection is lost if the premium is not paid on time, and guaranteed UL’s do not build much cash value.

Universal Life (UL)
UL’s are called flexible adjustable life insurance for a reason. Premiums are flexible. There is a target premium. The real target is to make the life insurance coverage last for the rest of the policy holder’s life. Premium can be raised, lowered or kept the same to meet that target. It’s sort of like gas in the car. The idea is to have enough gas (cash value) to reach one’s destination, i.e. go beyond the person’s lifespan. At the policy’s beginning, target premium is typically set to age 100. The car’s (i.e. carrier) performance helps determine how much gas (premium) is needed. With a UL the holder is obliged to take a much more active role in management of the policy.

Does my age affect which type I choose?
Yes, generally select a UL in 40’s and 50’s, and a guaranteed UL in 60’s, 70’s and 80’s

Universal Life: 40’s and 50’s
When younger, in your 40’s or 50’s, you want the flexibility of regular universal life to lower or raise premium payments depending on your financial situation, to build higher cash value and to possibly replace your coverage for a better product later on.

For example:

Mrs. Wright, age 46, takes out a $250,000 universal life policy with the target premium of $150 a month. Five years later, her child needs braces and her monthly budget is tight. Since there is $3,000 cash value in her policy, Mrs. Wright, after reviewing an in force illustration, lowers her premium to $100 a month. One year later after getting back on better financial footing, Mrs. Wright increases her premium to $200 a month until the policy back on track to the original target of age 100. Later she is able to lower the premium back down to $150 a month.

Guaranteed UL: 60’s, 70’s and 80’s

When older, lock in a benefit amount for a set premium for life.

For example:

Mr. Ward, age 68, would like to leave $500,000 to his son. He chooses a guaranteed universal life product because the premiums are fixed and the policy is guaranteed to age 121. He has a secure retirement income and can well afford a fixed premium payment. He puts those payments on bank draft and can rest assured that this portion of his estate plan is secure.

Life insurance to pay off a reverse mortgage

by Sean Drummey

October 11, 2011

9:55 AM

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Age 62, Age 73, guaranteed universal life, In your 60's, In your 70's, Indexed Survivorship Universal Life, Joint survivor guaranteed universal life, Survivorship Life Insurance, Survivorship Universal Life

First let’s assume a homeowner does adequate research including taking a long hard look at the disadvantages and alternatives decides a reverse mortgage appropriate for their situation. Granted, many homeowners will need every penny of this money, but some may desire to tap into home equity for discretionary funds and have broader goals. For example, those who want an heir to keep the house, life insurance is a means to pay off the reverse mortgage’s loan balance.

For those in average or better than average health, life insurance is readily available in one’s 60’s, 70’s, and even 80’s. For joint policies only one of a couple needs to be healthy to qualify; the other can be uninsurable.

There are two forms of life insurance: term and permanent. Term level premium ends in 10, 15 or 20 years, so in generally term is not suitable to cover a reverse mortgage’s lifetime commitment. For permanent there is whole life and universal life, which comes in many forms. The best product to cover a reverse mortgages is guaranteed universal life. It’s fixed rate and coverage for life, usually to age 121. All the policyholder has to do to is pay the premiums on time. Couples can get joint coverage, also known as second to die coverage, with a joint survivor guaranteed UL. How much does a guaranteed UL cost? There are sample rates by age on the right hand side for individuals. Please contact me for your own personalized quote. Here’s an example.

Mr. and Mrs. Jones, both 73 and in good health, needs funds for retirement but want to leave their lakeside home to their daughter, so they decide upon a reverse mortgage. They qualify for a lump sum payment of $250,000. They take out a $350,000 joint survivor life insurance policy so their daughter may pay back interest and principal on the loan, and also as a contingency against declining home value. A $350,000 joint survivor guaranteed UL with Prudential is $650.00 a month, at the preferred non tobacco rate.

If this couple were in average health, this Prudential joint coverage is $887.00 a month at the standard rate. To show you how joint policies compare to individual, using this example a $350,000 individual policy for a woman is $768.38 a month with Lincoln National and $1,009.23 a month for a 73 year old man with Banner Life.

Keep in mind the heirs can be the owners and beneficiaries of life insurance policy and pay a portion or all of the premiums.

New consumer protection at claims time

by Sean Drummey

October 4, 2011

10:26 AM

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Annuities, California, Claims, Consumer, Policy holder, Policy Review, Policy servicing agent

Life insurance policy holders should carefully plan ahead so their beneficiaries are promptly paid their life insurance money. The beneficiary should be aware the pay out procedures of the life insurance carrier.

California adds some protection

On October 2nd Governor Jerry Brown of California signed a new law requiring life insurance companies to get approval from beneficiaries to keep death benefit payments in retained asset accounts. This is good news for California consumers. Any steps taken to safeguard this process are welcome.

Check vs. check book

Life insurance is not necessarily paid out as a lump sum. Don’t assume the beneficiary of a $500,000 life insurance policy gets a $500,000 check in the mail. Starting in 1983, life companies began adopting the practice of sending beneficiaries a check book with pay out options. Nothing to stop the beneficiary for writing a check for the lump sum and depositing it a bank, but if not the benefit is kept in a retained asset account. Why did this happen? Simple. Life insurance companies earn a profit on the money retained. Was this a bad deal for the consumer? It depends on the company, the interest rate offered, protections and fees charges. Financially sophisticated beneficiaries would find the highest rate of interest possible for their money and move their money immediately for the highest rate of return or to lock in an annuity or investment. This retained account works against beneficiaries who delay making a decision or do not shop around for the best return on their money. Also this money is not FDIC insured.

According to the National Association of Insurance Commissioners, the key issues for retained asset accounts: (emphasis mine)

What interest rate will be paid on the proceeds, how will the interest rate be determined and how will the interest amount be credited to the account?

Will the proceeds be held in a bank, which would make the proceeds FDIC insured up to the limit permitted by law?

Will the proceeds be held by the insurer, which would make the proceeds subject to coverage by a state guaranty fund should the insurer fail?

Will the proceeds be held in a bank checking or an insurer draft account and what banking services, if any, will be provided?

What services will be provided at no charge and what services will involve a fee?

More consumer protection and awareness is needed

Beneficiaries who do not move their money were taken advantage of with uncompetitive interest rates, high fees and lack of protection offered by federally regulated banks. Keeping the money in a retained asset account opens the beneficiary to other possible abuses.

It’s important for someone to give the beneficiary sound financial advice at claims time. Given the beneficiary is possibly grieving and at the insured passing away, he or she may not ready to make a good decision in a timely manner.

A policy owner should have a life insurance agent who is actively servicing the policy. If you are not in contact with the agent who sold your policy to you, an agent like myself can become your servicing agent. When the insured passes away, the agent can assist the beneficiary with the death claims: contact information, the claims form, and which other collaborating information is required: the death certificate and often a public notice of the insured passing away. Also the agent should inform the beneficiary of the company’s pay out practices, to give the beneficiaries advice on what is in their best interest. Remember an independent agent is not employed by the life insurance company. The agent duty is to work in their client’s best interest.

Ideally what the beneficiary does with the life insurance money is an informed choice made in council with a family adviser, financial professional or executor. Life agents can serve the beneficiaries by informing them of their annuity options. It is important for the beneficiary, if desiring an annuity, to shop for the best deal, and not automatically take an annuity offered by policy holder’s company. What best will depend on the beneficiaries situation. A conscientious servicing agent knowing the policy holder’s intentions and instructions is in a very good position to help serve in the beneficiary’s best interest.

Life Settlement: seniors watch out

by Sean Drummey

September 29, 2011

2:51 PM

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Accelerated Benefit, Accelerated Benefits, Accelerated Death Benefits, Cash Value, life settlement, Life Settlements, Living Benefits, Policy Review, Seniors, Stranger Owned Life Insurance, Term Life Insurance

I wrote in this blog about stranger-originated life insurance this Monday, and the next day Imperial Holdings, Inc., a company in the life insurance settlement business, had its headquarters in Boca Raton, Florida raided by the FBI. No charges have been filed. Life Partners, Inc., is another company in the settlement business, is also under investigation. Allegations for Life Partners focus on misrepresentations to their investors.

Regardless, seniors interested in a life settlement need to be wary of the life settlement industry. Finra investors provides an excellent overview of the issues involved.

Make sure to contact an independent agent to review all your options before signing over ownership of your policy. Ask your company for an in force illustration. Explore options such as: Continue reading “Life Settlement: seniors watch out” →

Ruling to contest Stranger-Originated Life Insurance: dead pools precedent

by Sean Drummey

September 26, 2011

5:12 PM

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Age 72, Charitable Gifts, Delaware, guaranteed universal life, life settlement, Stranger Owned Life Insurance

Bloomberg reports on a Delaware court ruling which opens an avenue to curb stranger-originated life insurance. Life companies now can contest the owner’s insurable interest even after the standard two year contestability period.

Normally, life insurance implies an insurable interest. A wife who depends on her husband’s income has an insurable interest, if he dies. Two business partners who depend upon each other to run a company have an insurable interest. Normally, insurable interest and an income to benefit ratio keeps everything in line. The whole concept is to cover a loss, not to make a profit. For example, a man makes $50k a year. His wife takes out a $500k life insurance policy, 10 times his income, and sleeps better at night knowing the her and the children will be able to replace his lost income if he dies.

But investors, strangers with no insurable interest, have also gotten involved with life insurance seeking profits. Let’s take, for example, an investors finding a 72 year old man in average health, and convince him to take out a $1 million dollar policy on his life by paying him a lump sum to transfer ownership. Age 72, male, standard non tobacco premiums on a guaranteed UL are currently $38,415 a year. Best health rates are $28,346 a year, but in the logic of this type of deal, it’s better to find someone less healthy; they don’t live as long. Investors pay the premiums and collect the $1 million when the insured dies. This is called stranger owner life insurance or SOLI for short. The practice has an unsavory history.

By the mid-18th century, purchasing policies on strangers had become a popular form of gambling. Investors often placed their money into “dead pools” insuring the lives of well-known public figures, particularly those with such problems as gout or alcoholism, or those who were likely to be challenged by political enemies and engaged in duels. Such “investors” would often offer targeted insureds lavish dinners and “a drink or two on me”–or would use other means to assure the certainty and accelerate the realization of their investment.

How much of an impact this court ruling will have depends on how broad an interpretation is for the term “stranger-originated”. Typically, the insured is initially the owner, and then assigns ownership to a stranger a short time after policy issue. Application now have specific questions about intent of the policy to be assigned, so transfers of ownership will be looked upon closely for more traditional insurable interest.

Reversing ground on stranger owner life insurance is good news. Speculating on someone’s death is bound to lead to abuses, and speculation on life insurance, where policies are issued regardless of need, runs up the cost for the legitimate consumer.