[Marxism] [Pen-l] Life insurance now being bundled like subprime mortgages

Gar Lipow gar.lipow at gmail.com
Mon Sep 7 09:15:26 MDT 2009


On 9/6/09, Louis Proyect <lnp3 at panix.com> wrote:
> NY Times, September 6, 2009
> Back to Business
> Wall Street Pursues Profit in Bundles of Life Insurance
> By JENNY ANDERSON

This takes an old (and disgusting) but profitable scam, and ruins it
to generate bubble. Industry has made money by taking out life
insurance on low paid workers, keeping it even after they leave the
company. It makes a profit because certain types of whole life are in
some ways tontines.

If someone with this type of whole life policy cashes it in before
they die, while some of the profit goes to the insurance company, a
bit goes into the investment fund the policy holders have joint rights
to.  Because most people with whole life do cash it in before they
die, someone who hold onto a whole life policy until death, and thus
gets the investment plus the payout wins financially or rather their
heirs do - getting a better payoff than investing the money
themselves. Even though whole life pays a worse return than combined
term plus saving the premium difference yourself, if you hang on to it
until you did your heirs profit because you can some of the money
invested on behalf of other premium holders. Since corporations can
afford to hang on the the policies until the insured die, they had a
pretty certain profit.

But if these firms start a bubble, and people who want to cash out
sell to them instead of surrendering policies to insurers,  then
nobody ends up with any one else's investment. Instead both death
benefits and  "cash value" for each insured have to be covered from
premiums and investments on that insured. And "dead peasant" insurance
will start having lower returns than standard investments.  A silver
lining?




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