The Ethics of Life Insurance Settlements: Investing in the Lives of Unrelated Individuals |
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Authors: | Hugo Nurnberg Douglas P Lackey |
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Institution: | (1) Dept. of Statistics, Faculty of Mathematics and Physics, Charles University of Prague, Sokolovska 83, 186 75 Prague, Czech Republic |
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Abstract: | Life insurance settlements, or life settlements, are life insurance policies owned by investor-beneficiaries on the lives
of unrelated individuals. With life settlements, investors make substantial payments to the insured individuals upon purchasing
such policies, pay any remaining premiums, and collect the death benefits upon the demise of the insured individuals. Transactions
involving life settlements seem poised to become a major source of profits for investment banks, comparable in dollar amount
to subprime mortgages. With life settlements, the insured individuals suffer no immediate harm, and the sale of a policy an
individual owns is permissible under current law. Nevertheless, moral questions can be posed about the social values expressed
by these practices, the effect of these practices on the virtue of charity, and the overall loss of social utility that will
result from life settlements. We consider life settlements from utilitarian and libertarian perspectives, and then consider
the effects of life settlements on social values and on individual character. On balance, we favor legislative changes in
insurance and tax laws to discourage life settlements, and argue that certain forms of life settlements should be banned outright. |
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