Betty White's endorsement can be a powerful boon for business. The former "Golden Girl" was recently named America's most trusted celebrity. That's good news for William Page and Associates: They've got White starring in a music video promoting "life settlements."
The irony here is that White, 89, is probably as unfamiliar with the downside of life settlements as most senior citizens are when they get pitched these products. And while life settlements, also known as "viaticals," are presented as win-win propositions, they can be anything but for the seniors who buy into them.
Here's how viaticals work. Companies buy various people's existing insurance policies, then sell them to other people. (Viaticals involve policies of people expected to die within a few years, while life settlements involve policies of those who are simply of a certain age, such as 60 or older.)
Here's a simplified example that will make the concept clear: Imagine that Bob is very sick and isn't expected to live for more than about two more years. He's running low on funds, and has a life insurance policy that will pay off when he dies. Meanwhile, Jane is interested in investing some money effectively. She's presented with the opportunity to essentially invest in Bob's policy. If it's set to pay $100,000 on his death, Jane might pay $75,000 for it. That way, Bob gets a lot of cash now, and Jane expects to get the $100,000 in about two years. At that rate, she'd be earning a solid return.
That arrangement seems great at first: Bob gets much-needed funds, and Jane gets a compelling investment.
And then the risks appear...
For starters, what if advancements in medicine help Bob live 10 more years, not two? Jane's ultimate return on her investment will drop significantly -- especially if she's on the hook for making his premium payments. After all, it's not inconceivable that Bob will end up outliving Jane.
And there's bad news for Bob, too. If he ends up beating his disease, he'll be living without the life insurance that he might have wanted and needed -- and it's very possible that his health history will prevent him from getting a new policy.
Life settlements that don't involve terminally ill people can present similar risks. Some 65-year olds will live another 10 years, while others may hang on for 30 more. All of these arrangements may have tax implications, and depending on where you live, many of them may not be highly regulated.
Now, in reality, investors like Jane don't buy policies directly from policyholders like Bob. But there is plenty of money to be made by middlemen, ranging from public companies such as Life Partners Holdings (LPHI) and Imperial Holdings (IFT) to smaller privately held ones. Even big banks such as Goldman Sachs (GS) and Credit Suisse (CS) have looked into entering the business, helping pension funds make life insurance-linked investments.
Middlemen often take a cut of each deal. The folks at the Lifeline Program, for example, are eager not only to sell investors on the concept, but also to buy life insurance policies. Signing up Betty White helps the company attract the attention of the many Baby Boomers who love her.
There have been lots of consumer complaints about these settlements over the years, prompting government entities to start taking a harder look at them.
Life Partners in particular now faces a Securities and Exchange Commission investigation for allegedly underestimating the life expectancies on its policies, and therefore suggesting that investors will earn more than they actually will. A Wall Street Journal investigation found that in 90% of its policies, people outlived Life Partners' projections.
The North American Securities Administrators Association maintains a list of investments that "threaten" investors. As it noted, "Legitimate investments in life settlement contracts involve a high degree of risk, and investors may be responsible for routinely paying costly premiums for policies that insure people who outlive their life expectancies." Fraudsters and scammers offer plenty of not-so-legitimate investments as well. Tread carefully.
I can imagine why Ms. White, 89, might have agreed to the deal. She's well known as an animal lover and animal-rights advocate, and it seems that a portion of proceeds from the sale of the video will go to the Los Angeles Zoo. (She apparently didn't know much about life settlements before being approached by William Page's Lifeline Program.)
While her intentions may be pure, and while viaticals may make sense for some people, for most of us -- probably including Betty White -- there are better ways to raise or invest money.
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