Archive for the ‘Life Insurance’ Category

SPINLIFE/STOLI: NY Times Got it WRONG

January 16, 2007

What happened to “all the news that’s fit to print”? What about checking to see that what is printed is not distorted facts or completely incorrect? What about checking the history of people cited as experts, to assure they were not charged with fraud by government agencies?

That’s part of what was wrong with the front page story published on December 17, 2006 and copied by newspapers across the nation.

Not one word about the risk to investors who buy a policy from someone like Marvin Margolis, the financial consultant whose name and quote lead the story. If he medically qualifies for $7 million of life insurance at age 80, it’s likely he’ll live another twenty years. Annual premiums may be in the high five figures or even six figures. He hopes a settlement company will pay him $2 million. That means investors must pay at least $4 million because the settlement company takes it profit up front–no waiting for someone to die–and it pays commissions to the insurance agent who brought Margolis’ policy to them, and commissions to agents who bring in investors, and a host of other administrative expenses.

Margolis didn’t pay a plug nickel for this policy. He used “premium financing” –a gimmick conceived by settlement companies to avoid laws against insurance fraud by creating the appearance of a loan. Of course premium financing is not available to families who are not wealthy, the type of families helped by Extreme Makeover: Home Edition. Premium financing will not help the very people who need life insurance to protect their loved ones.

And if it was available, it would not work. Take, for example, a family in which one parent is fighting with cancer. The other parent needs life insurance to protect the children. But Premium Financing companies charge huge fees (some consider them usurious). If the insured wants to keep the policy, he or she will have to repay the premiums plus those huge interest charges. This must be done on the timetable of the company that finances the premiums. In other words, you are forced to sell the policy to them.

Wealthy people, of course, can afford to buy back these financed policies but they don’t need to do so. They didn’t need the insurance in the first place and if they need insurance two years down the road, barring a change in health, they can get a new policy at less cost than buying the policy from the premium financer.

Shame on Marvin Margolis. As a financial consultant he must know that these SPINLIFE (speculator-initiated life insurance) policies, also known as IOLI (investor-owned life insurance) and SOLI (stranger-owned life insurance) are fraudulent transactions.

He must know that he misrepresented the purpose of the insurance when he applied for the policy. Typically, people like Margolis claim “estate planning.” He also must know that he misrepresented the beneficiary, possible the owner as well. Typically, people like Margolis name a relative as beneficiary and sometimes name a relative as owner. Of course that is changed as soon as the policy is sold, and that was his real intent: to sell it.

These lies are “material misrepresentation,” a legal term that means “fraud.” Based on this, insurers have the right to rescind (cancel) the policy if they discover the fraud within two years of issuing the policy.

The Times report is not balanced. It provides an example of viatical settlements, and that has nothing to do with life settlements. Viaticals are an important for people who are seriously ill and whose finances have been devastated. I know of many who were helped by viatical settlements; their stories are so touching that they bring me to tears years after I first heard them.

The fact is that what began as a need-driven industry has turned into a greed-driven industry, one that has no concern for people in need. Because settlement companies buy SPINLIFE for as little as two percent of the death benefit, they do not offer a fair settlement to people in need–if they even consider their relatively small policies.

But that’s not the only misrepresentation by the Times. In this poorly researched, obviously biased article, the Times compared apples and oranges and that, in turn, influenced editors in other newspapers who trust the Times. Example:

Last year, for instance, insurance companies reduced their financial exposure by $1.1 trillion when 19.8 million policyholders stopped paying premiums . . .. In comparison, the industry paid death benefits on only 2.2 million policies.

What amount of death benefits were paid on the 2.2 million policies? Why was this figure excluded? Was the intent to make it appear that insurance companies deserve to be defrauded?

Why do policyholders stop paying premiums? There are many legitimate reasons and the reasons may be that the policyholder never intended to keep insurance past a certain point in life. But the Times makes it appear that these policyholders were victims of insurance companies.

The Times goes on to criticize insurers’ practice of basing premiums on lapse rates. Lapse-based premiums have their informed critics, not the nonesense of the Times article which implies it is OK to commit fraud, if the fraud hurts insurance companies. Well, New York Times, here’s a “heads up” for you. The victims are investors. To this day there are retirees who are investing in policies that insured elderly people who committed fraud. I can provide you with documentation to show the millions of dollars these investors lost, many losing their entire life savings.

Who provided this information to the Times? Why does the Times quote W. Scott Page, chief executive of Lifeline Program, and describe Lifeline as “a company that helps investors buy life insurance policies from the elderly and inform. And then quote Page as saying, “If you make it harder to sell these policies, you’re taking money out of the hands of people who have nothing else.”

If the Times had checked Page’s record with Florida authorities they would have seen the fraud charges brought against Page/Lifeline, and the reason that company fled Florida shortly after opening new, luxurious offices in Fort Lauderdale. (They fled to Georgia, which apparently offers a more hospitable climate for such companies.)

Now Page/Lifeline can use the NY Times article to solicit investors. Are you proud of yourselves, NY Times?

The Times also quotes Irene Randall, a life settlement broker in New Mexico who set up her 82 year old uncle with an $8 million SPIN-LIFE policy. If the Times did its homework, they would have learned that Randall, formerly a life settlement broker in Florida, was sued by the receiver for Liberte Capital Group who charged her with selling fraudulent life insurance policies to Liberte who then resold these policies to retiree-investors.

Great job, New York Times.

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