Death Bonds, Latest Investment Rage

Just when you thought you had seen the last elegant, complex, and high-risk investment vehicle (I am thinking of all the sub prime machinations), now we have death bonds on the market. These derive from pay-up-front offerings to people (often the elderly or ill) to sell their life insurance policies to investors who pay the premiums and collect the face value upon the death of the individuals. This is a field that has moved from small and dubious plays in "life settlement securities" to the entry of big investment banks and the creation of a new "asset class" with projections of $150 billion in the next decade or so. This is not a joke. Investment banks are already hawking death bonds to institutional investors. It will not be long before there will be mutual funds in this niche. This is sleazy stuff and the investor needs to look closely into these "products." The person selling his/her life insurance policies also needs to think twice -- three times -- before getting sucked into doing so. Business Week thought this was a big enough issue to make it a cover story this week. Their story is entitled, Profiting From Mortality.