Investors Recruit Terminally Ill to Outwit Insurers on Annuities - WSJ.com

By MARK MAREMONT And LESLIE SCISM

"Terminal Illness? $2,000 in CASH, Immediately Available."

That was the promise of an advertisement that appeared regularly in 2007 and 2008 in the Rhode Island Catholic, the official newspaper of the local diocese. The money, the ad said, was coming from a "compassionate organization" that wanted to provide "financial assistance" for those near death.

In reality, the ad was a recruiting pitch for a plan hatched by a prominent Rhode Island estate-planning lawyer, who believed he had discovered a way to use an investment product sold by insurance companies to make no-risk bets on the stock market. He recruited dozens of terminally ill people to, in effect, serve as paid fronts for purchases of the product, variable annuities. The lawyer and other investors put tens of millions of dollars into the policies, hoping to reap a profit when the recruits died.

The arrangement, now under investigation by federal prosecutors and snarled in litigation, is the latest twist in a cat-and-mouse game between insurers and sophisticated investors. The investors comb through policies marketed to individuals and figure out ways to convert them into profit-making products for people with no emotional bond to the deceased.
Continue Reading

Alternative Approaches Could Address Retirement Risks Faced by Workers but Pose Trade-offs

This report, originally issued July 24, 2009, was revised on September 1, 2009, to correct table 12, row 1, column 4 – “The Baseline results, Household annuity equivalent (per year, 2008 dollars) for income quartile 2 should be $7,780.”
Read More/Download Report