Business & Finance
How the AIDS crisis laid the groundwork for today's multibillion-dollar life settlement industry
A market that began with informal cash agreements for terminally ill patients during the 1980s has grown into a Wall Street investment sector.
The short version
- The modern life settlement market originated during the late 1980s AIDS epidemic, initially taking the form of viatical settlements that offered terminally ill patients cash for their insurance payouts.
- Rooted in a 1911 U.S. Supreme Court decision that treated life insurance policies as personal property, the business expanded over the decades to encompass retirees seeking financial planning options.
- After the 2008 financial crisis, institutional investors and hedge funds stepped up purchases of active insurance policies, eventually bundling them into securitized products known as death bonds.
Key facts
- A life settlement involves selling an active life insurance policy to an investor for a cash fraction of its face value, after which the buyer maintains premium payments and receives the final payout upon the policyholder's death.[NPR]
- The legal framework allowing individuals to sell their life insurance policies to third parties derives from a 1911 U.S. Supreme Court ruling establishing policies as transferable property.[NPR]
- Scott Page established an early brokerage model during the late 1980s AIDS crisis to assist terminally ill patients in acquiring cash for medical care and living expenses through viatical settlements.[NPR]
- Following the 2008 financial crisis, hedge funds and investment banks increasingly purchased life insurance policies to securitize into financial instruments called death bonds.[NPR]