Even though I don't have a law degree, I know there's no legal way to collect on a life insurance policy by having someone killed. I also know that, even without committing first-degree murder, you can't purchase life insurance policies for people without a legitimate "insurable interest."
However, the insured people Matthew Heller
writes about for this month's cover story (You Bet Your Life)
aren't unwilling or uninformed. Instead, these people are actually eager to trade death benefits for an up-front payout from outside investors. (As part of the deal, these investors also continue to pay the policy premiums.) Arguably, it's an arrangement that serves both sides well. But the insurance companies hate this idea, and for some time now they have been asking courts to annul these deals because they run afoul of state statutes prohibiting "stranger originated life insurance" (STOLI).
"Insurance companies often couch their arguments in moralistic terms," Heller observes. "They accuse life settlement investors of betting on death and corrupting the whole idea behind life insurance, while investors say that people should be able to sell their policies to whomever they want."
But of course the litigation over this issue is about more than just lofty principles. And on the insurance industry's side, one critically important point to keep in mind, says Heller, is that not all life policies end with the beneficiaries receiving a death benefit windfall. In fact, to keep both their profit margins up and premiums affordable, insurance carriers count on a certain percentage of their policies lapsing before they pay off. But when investors get involved, they make sure these policies never lapse, which messes up the model.
"When you look at such things as credit swaps and derivatives, you realize that insurance companies have become a lot like investment houses," Heller says. "But here you have a situation where insurers and investors find themselves in a high-stakes conflict with each other. And so far, at least, the courts haven't figured out a clear way to resolve it."
Also in this issue, writer Dashka Slater
profiles Lisa Bloom, a Woodland Hills attorney who in many ways seems to be following in the footsteps of her media-savvy mother, Gloria Allred (She's a Lawyer, but She Also Plays One on TV)
. And finally, for our Legally Speaking series this month we speak with Elyn Saks, an expert on mental health law who has written at length about her own struggles with mental illness (Journey Through Madness)