Scott Page, pictured in the 1990s.
Scott Page
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Scott Page
Listeners of our August 14 Planet Money episode may recognize some of today’s newsletter. We got such a response, and so many questions, we wanted to go a little deeper with this follow up.Â
Frank Sierawski never intended to find a billion-dollar market centered around predicting when people with life insurance policies will pass away. This discovery occurred by chance after he received devastating news.
More than ten years ago, Sierawski was diagnosed with a rare form of Stage IV lung cancer.
He had a wife and three children, and he contemplated all the moments he would miss out on. Thus, he set what seemed an ambitious goal at the time: to live for seven more years.
“That was when I was 35,” Sierawski recalled. “The five-year survival rate is 20%. That seems like I’d be beating the odds. That’d be a big win. I’ll take that.”
While he was concerned about the emotional impact his death would have on his family, he was less worried about the financial aspect. Before his diagnosis, he had secured two life insurance policies.
At that time, Sierawski understood life insurance as many do: you pay an annual premium, and if you pass away while the policy is active, the insurance company pays a significant amount to your chosen beneficiaries. For him, that meant his family.
Today, Sierawski is 47 and fortunate that his life insurance policies were never needed. A new medication put his cancer in remission, but he continued paying his insurance premiums.
About a year ago, while browsing a Facebook group for cancer survivors, he stumbled upon a post that transformed his understanding of life insurance.
The post discussed a transaction where you could receive some of your life insurance money without passing away, known as a life settlement.
Here’s the process: you sell your life insurance policy to an investor for a proportion of its value, typically 20 to 30 cents on the dollar. The investor continues paying the premiums, and upon your death, they receive the full payout.
Sierawski realized that his life insurance was more than a mere agreement with his insurer; it was an asset he could sell.
“It’s an asset I didn’t know I had,” he remarked. “Which was like, whoa, mind-blowing.”
This newfound knowledge piqued his interest. As someone with a finance background, he understood that these companies desired quick returns. The sooner someone died after selling their policy, the more profitable it was. Thus, he suspected his cancer history might yield a better offer.
He submitted some forms online, and soon his phone began ringing incessantly.
Sierawski’s venture into the world of life settlements is detailed in a recent episode of Planet Money, which also traces the evolution of this market from informal arrangements during the AIDS crisis to its current status as a financial asset.
Initially unaware, Sierawski had entered a multibillion-dollar industry where policyholders like him were entries in vast investment portfolios. Wall Street was essentially waiting for people like him to die to collect their returns.
Wait, how is this even legal?
The legality traces back to the Supreme Court.
In the early 1900s, a man sold his life insurance policy to his doctor for $100 to cover an operation cost. When he later died, the insurance company sought a court’s decision on whether to pay the doctor or the man’s estate.
This posed a complex issue. The Supreme Court was against policies on strangers because it deemed them “a pure wager,” creating an incentive for the policyholder’s death. (Sound familiar?)
Life insurance has a fundamental concept called “insurable interest.” You can only insure someone whose death would cause you financial or emotional loss due to blood or family ties.
This is akin to how other insurance forms guard against moral hazards—the idea that you might take excessive risks, increasing costs for the insurer. You can’t insure a stranger’s car or house; the loss must impact you personally, or you might be tempted to destroy the insured property for the payout.
However, if you take out a policy on yourself, a family member, or someone whose death would affect you financially, what happens then?
The Supreme Court found a middle ground. In 1911, it ruled that as long as the initial policy conditions were met, the policy could be treated as property. You were free to sell it to anyone, including your doctor or investors.
Thus, an industry was born.
Dying broke
The legal principle didn’t immediately create a market. It wasn’t until the late 1980s that a genuine human need emerged, thanks to a man named Scott Page.
Page had moved to be with his partner, Greg, who was dying of AIDS. Greg worked as a carpenter as long as possible, but eventually, he couldn’t continue, leaving them in financial distress.
They had a routine of sorting mail to determine which bills to pay. One day, Page found a letter from Greg’s life insurance company, reminding them of the premium due for a $100,000 policy.
“I remember thinking, ‘Wait a minute, I’m starting to see the signs of you dying. I gotta figure out how to pay this premium,'” Page said.
Greg had named Page as his beneficiary to express gratitude for his care. At an HIV support group, Page shared their predicament: they had a life insurance policy that would eventually pay out, but they couldn’t cover the premium.
Afterward, a wealthy benefactor offered to help. Page arranged a handshake deal where the benefactor paid the premiums and loaned the couple $10,000 in installments. In return, when Greg died, Page would repay with the insurance payout.
The money changed their lives. They moved to a new house and used the funds for Greg’s medical care and hospice.
“The oxygen company wouldn’t leave oxygen until I gave them a check,” Page said. “Without the money, I couldn’t have given him the oxygen needed to keep him alive.”
Soon, others in Greg’s support groups wanted similar deals. The benefactor agreed to help more people until he ran out of money. Page then started a business, seeking investors, becoming a licensed insurance agent, and acting as a broker.
The pitch to investors was simple:
Life insurance premiums are largely based on life expectancy. Insurers pool many policies, and those who die sooner essentially pay for those who live longer.
Someone who takes out a policy when healthy is charged based on that health. If they become terminally ill, a new policy would have higher premiums due to the increased risk. However, existing premiums aren’t adjusted after a new health diagnosis like HIV, leading to a mispricing that attracts investors.
Some viewed the practice as ghoulish, but Page believed investor involvement was necessary to alleviate financial hardships from the AIDS epidemic.
“I’ve had people call me a vulture,” Page told a 1992 newspaper, “But my customers never had anything to live on, and now they will.”
After Greg died in late 1993, Page offered these deals to as many AIDS patients as possible, having witnessed the benefit to Greg.
By the late 1990s, Page had brokered over 3,000 such deals, known as “viatical settlements”—from Latin, roughly translating to: money for a long journey.
The long journey
A new drug intervention extended the lifespans of AIDS patients for decades. Page called it a miracle, but it meant investors were paying premiums much longer than expected, negating the “mispricing.”
It seemed this niche industry might collapse, but financial markets soon turned to another clientele: wealthy retirees.
In the 2000s, new companies emerged, buying policies from retirees who might otherwise let them lapse. These retirees didn’t necessarily need the money but wanted to liquidate for planning purposes.
Salespeople were dispatched nationwide to pitch to financial planners. Jonah Kahn worked for one such company, labeling these deals as “life settlements.”
Kahn recalled slow early days. Insurers disapproved, as these deals reduced their profits. Insurers counted on a percentage of policies lapsing annually. With companies buying and maintaining policies, insurers paid more death benefits.
Kahn faced skepticism from financial planners, recalling a conference question, “Isn’t someone just gonna kill my client?” He explained that with enough policies, perverse incentives to hasten a policyholder’s death were neutralized.
Wall Street’s interest grew. After the 2008 financial crisis, hedge funds sought secure investments, and life settlements seemed a stable option. After all, what’s more certain than death?
Firms began acquiring vast numbers of policies, even securitizing them as “death bonds.”
Kahn said companies pursued growth to satisfy Wall Street’s appetite. When they exhausted financial advisors, they targeted consumers directly, advertising through daytime television to reach aging Americans. Some might recall commercials featuring Betty White.
The ads no longer targeted only financial planners. Kahn noted a wide information gap between life settlement companies and callers, making it hard to discern a policy’s real value.
“You can’t go to Zillow and say, ‘My neighbor sold his policy for X, so I can sell mine for Y,'” Kahn said. “So it’s like if I tell you it’s worth 20 grand, you may believe me. Meanwhile, I know it’s worth 300.”
There are other financial considerations. Several listeners wrote to us to ask about the tax implications of one of these deals. Rounding out the old “death and taxes” adage!
Under most circumstances, life insurance payouts are not treated as taxable income. But the IRS has said in some situations life settlements will lead to additional taxes to pay. (And you should really talk to a tax professional about the specifics. Taxes are complicated.) So that’s part of the calculation too.
And it’s an incredibly personal, emotional calculation as well. How much potential future money for your family are you willing to give up to use right now? (It’s worth noting that many life insurance policies have an option to give your policy back to the insurance company for a chunk of change, called ‘surrendering’ a policy.)
On the other side of the transaction, the calculation is much less personal. And the life settlement companies, Kahn said, know everything about these deals.
 ”You’re going up against a buyer who,” Kahn said, “has the best people on board breaking them down and pricing them, has people interpreting the medical underwriting. If you’re not doing that on your side, then you’re already at a disadvantage.”
It was around this time that both Page and Kahn decided to make their exits from this industry. Kahn decided to found a brokerage to represent the sellers in these deals instead.
As for Page, the industry had become too abstract for him.
“It was to the point where I was always scratching my head thinking, have we forgotten why we started?” Page said. “Everything was so driven on, how much money can we make? Why isn’t this person dead yet?”
(One listener who used to work for a life settlements company emailed us with an anecdote about a coworker who would ring a big bell in the office any time she’d get a hit looking up their policyholders in the Social Security Administration’s death master file.)
Page cashed out. He sold his company to private equity. He calls it his deal with the devil.
And this is the world that Frank Sierawski, the cancer survivor, stumbled into.
