Spin-Life Insurance Policies: A Dizzying Effect on Human Dignity and the Death of Life Insurance

By Alt, Anthony | Ave Maria Law Review, Spring 2009 | Go to article overview

Spin-Life Insurance Policies: A Dizzying Effect on Human Dignity and the Death of Life Insurance


Alt, Anthony, Ave Maria Law Review


INTRODUCTION

There's no such thing as a free lunch. (1)

~Milton Friedman

Since ancient times, people have recognized the usefulness of money because of its capacity to facilitate the exchange of goods. (2) Indeed, it would be difficult to find someone in modern American society that would refuse a "free" gift of $340,000. Yet such offers exist today in the form of speculator-initiated life insurance policies ("SPIN-Life"). (3) Consider the following letter from an attorney to a senior citizen:

   I have been working with certain bankers, life insurance
   professionals and actuaries who, along with me, can assist you with
   gaining access to ... funds to provide a benefit to your family or
   to your favorite charity in a little more than two years at no cost
   to you through non-recourse "premium financing." We can accomplish
   this by using your excess "insurance capacity." This program is
   offered to individuals who are between the ages of 75 and 90 and
   who have a net worth in excess of $5,000,000.

      Following is a simple example to demonstrate the concept: John
   Smith is 80 years old. He [h]as a net worth of $10 million and has
   $2 million of existing insurance on his life. [Our law firm] will
   work with John to take advantage of his excess "insurance capacity"
   (approximately $8 million) to purchase a new life insurance policy
   on John (with an $8 million death benefit).

      During the underwriting process, we arrange for a "premium
   finance company" to agree to pay the premiums on John's behalf for
   the first 24 months (on a "non-recourse" basis, so John has no
   financial risk). Therefore, John will own the policy but will not
   be obligated to pay the annual premiums (which in this example
   could be approximately $300,000 per year including accrued
   interest).

      After 24 months have passed, John's health and the policy's fair
   market value will be reevaluated. Offers to purchase the policy
   will be obtained from "life settlement" companies and the best
   offer will be selected. John then sells the policy to a life
   settlement company (usually in the range of 10-15% of the death
   benefit). Since the policy in this example had a death benefit of
   $8 million, the sale price could range between $800,000 and $1.2
   million.

      The sale proceeds must first repay the "non-recourse" loan to
   the "premium finance company," then John (or his designated
   beneficiary) will receive the excess, if any. In this example,
   assuming a $1 million sale price and a repayment of $600,000 to the
   "premium finance company," John will receive $400,000--this amount
   will be treated as a long-term capital gain currently taxed at 15%,
   netting John $340,000 after taxes!

      I have enclosed the necessary forms to begin the insurance
   underwriting process. If you are interested in applying for this
   program, please complete the forms and return them in the enclosed
   envelope....

      I look forward to working with you on this amazing opportunity!
   (4)

Receiving such a letter appears to be an amazing opportunity indeed. Such an opportunity, however, although seemingly free, comes with a cost. This Note shows that SPIN-Life insurance policies contradict the nature and purpose of life insurance and should be considered securities or wagers, not insurance contracts; make human lives a commodity; violate current insurable interest laws and public policy against wager contracts; and should be declared void ab initio.

Part I of this Note provides an overview of the nature and purpose of insurance in general. Part II explains the requirement of an insurable interest and how such a requirement relates to an insurance contract. Part III sets forth a brief explanation of life insurance in particular, and how the insurable interest requirement makes a life insurance contract distinct from other contracts. Part IV delineates what SPIN-Life policies are, how they differ from other life insurance policies, and why they are problematic. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Spin-Life Insurance Policies: A Dizzying Effect on Human Dignity and the Death of Life Insurance
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.