You bet your life insurance

Frank and his childhood insurance discovery

0:00This is Planet Money from NPR.

0:06For a lot of people, the very mention of the word insurance can evoke a mixture of both terror and boredom. It's something lots of us might buy when we have to and then hope to never have to think about again. But that is not how Frank Sirowski thinks about it. Frank learned about the wonders of insurance early on. My first foray into insurance as a concept was when I was in fourth grade and I accidentally burned down my bedroom.

0:34What? I had a little candle that was in a plastic container and I woke up to the wall on fire, smoke everywhere. And I was like, oh, what do I do? Frank runs down the hall to the bathroom to grab the first vessel he can find, which turns out to be a tiny toy bucket. So I'm filling this bucket and I'm running back and forth to my bedroom, but the smoke detector goes off. Now the whole family's awake. What's going on? Frank's parents help him put the fire out.

1:05And when the literal smoke clears, Frank can tell it's done a lot of damage. It seems like he might be in big trouble. Except that is not how things go because of what his dad does next. What I saw my dad do was like magic. Frank's dad's magic trick was that he filed a claim with his insurance company. I didn't get in trouble for burning down my room because insurance was going to pay for it all. Yeah. And so he got insurance to repaint the entire house. He got new carpet and all the bedrooms. He turned our crappy Macintosh into a gateway computer, which that was like a Cadillac.

1:40And so that's when I was like, ah, insurance. This is genius. So by the time Frank had his own first kid in his late 20s and a friend suggested it might be time to get his first life insurance policy, he was immediately open to the idea. He understood the basic economics of life insurance. The idea that these companies collect payments from a big pool of people and only some die younger than expected and get big payouts. So the company uses the people who live a long time to pay for the people who live a short time. And Frank's a numbers guy.

2:10So he started thinking about the question of life insurance like a math problem. And when he looked at the difference between how much he'd pay every year over the 30-year term of the policy versus how much his family would get if he died, it actually seemed like kind of a steal. So I'm going to pay $608 a year. And if something happens to me, a car wreck, anything, they're going to pay a million? I'm just like, I feel like they're idiots. Right? Frank signed on the dotted line.

2:42And after he had a couple more kids, he decided to do it again, to take out another policy. Together, they were worth $1.5 million. And not long after that, something happened that would cement Frank's belief that life insurance was kind of the deal of a lifetime. He had a pretty bad cancer scare, got diagnosed with a rare kind of stage 4 lung cancer. Luckily, Frank was able to get on a new drug that put his cancer into remission. But the whole thing made him grateful he'd signed up for those policies when he was young and healthy. And then one day, just over a year ago, Frank stumbled across a deal that added a new and enticing and potentially lucrative twist

3:18to what he knew life insurance could do. It was a Facebook post talking about this weird thing called a life settlement. What is this life settlement? Like, haven't heard of that? That's new? Frank fires up the Google machine and learns that a life settlement is apparently a deal where you don't have to actually die to get some of your life insurance money. Basically, you sell your life insurance to somebody else. They give you a chunk of its value, like could be as low as 10 cents on the dollar or as much as 70. Then they take over paying the premiums, and when you die, they get the full payout.

3:53Frank discovers there's actually this whole ecosystem of companies clamoring to buy up insurance policies. And some seem like they want to buy his. Yeah, it's an asset I didn't know I had. Which was like, whoa, mind-blowing. And now Frank, being Frank, had a new set of calculations to make. Should he collect some of his money now while he's alive? Or wait to get all of it when he's dead?

The secondary life insurance market

4:17Hello and welcome to Plain of Money. I'm Alexi Horowitz-Gazi. And I'm Vito Emanuel. The world of finance is filled with strange niche ecosystems and obscure techniques for moving money through time and space. But this secondary market for life insurance was arguably the strangest that Frank and the two of us had ever heard about. Today on the show, how the wheels of finance transformed a desperate deal made during the AIDS crisis into a multi-billion dollar industry. And why some of the biggest firms on Wall Street are now waiting for thousands of strangers to die in order to reap their returns.

4:52And we'll follow Frank as he figures out whether to make the biggest bet of his entire life. The market that Frank Sirowski stumbled into last year, this big, complicated secondary market for life insurance, it started out as a very simple deal made in a desperate situation. And then it started to mutate and mutate again, following the pull of profit down a familiar path.

5:23You see, there's this theory of financial evolution that goes something like this. Somebody comes up with a financial tool to serve a real flesh-and-blood human need while turning a tidy profit. Like, need to buy a house? Might we interest you in something called a mortgage? Whole industries then develop around these specific human needs as people realize it's a good way to make a buck, directing huge flows of capital to where there once was none. But then someone else will recognize a new way to make an even bigger buck by tweaking that technology,

5:54by, say, deploying it in a new market or repackaging it. Yeah, like, how about we bundle a whole bunch of mortgages and sell them off in tiny little slivers? Yeah, it doesn't always end well, but each time the original idea is adapted by somebody seeking some new pocket of profit, it evolves further toward abstraction and complexity. By the time Frank started thinking about whether to wager $1.5 million of life insurance, the life settlement industry had already become a place where policyholders like him were line items in massive investment portfolios.

6:27But nearly 40 years before all that, there was one flesh-and-blood human need that started it all.

Scott Page and the AIDS crisis

6:32That story begins in the 1980s with a guy named Scott Page. Scott told us that he himself never set out to help create an industry where the profits flow from somebody's death. Yeah, that was a necessary evil. What was driving us was the fact that we were helping people. The first part of the tale, Scott explains, is actually a love story. Scott was raised in a conservative family in Baltimore, and by his 20s, he was struggling with his sexuality, wrestling with his desire to be with men. So one day, he went out to see a guidance counselor about it.

7:05And the counselor's like, I know exactly how to quash those desires. You should join the military. So that very week, Scott enlisted in the Air Force. And then they stuck me in a room with, you know, 25 boys and said, take a shower and you've got four minutes. And I was like, well, I'm not sure this was necessarily the best thing I could do to not make me have homosexual thoughts. What Scott really wanted was to find somebody he could share his whole life with. And I would have these dreams of, like, having a husband that, when we go to bed at night, we'll be laying in bed reading a book.

7:40And my husband will take his glasses off and close his book and tell me I love you and kiss me and we go to bed. By the time he got out of the Air Force, Scott says he was determined to try to make those dreams a reality. So one night, he set out to Rehoboth Beach, Delaware to visit a gay bar called The Renegade. And as soon as I walked up to the bar, someone beside me said, hello, my name's Craig. And he was this masculine man with this dark hair and these big ears and big, thick forearms and a big hand.

8:12And I remember when he shook my hand, I was just like, oh, my God, this is like everything that I've dreamed about is standing right here in front of me and just said hello to me. And that was the first night that I had ever slept being held by a man. Scott and Greg quickly fell into a long distance relationship. And soon they started making plans for Scott to move to Cleveland for them to be together. But one night a few weeks before the move, he got a call from a man he'd never met. Who told me, I know you're dating Greg and I know you're getting ready to move to Cleveland, but there's something you need to know.

8:46And he has AIDS. This was the late 1980s. And people were dying every day from this little understood disease that was disproportionately afflicting gay men. Scott wasn't too worried about himself. They had been careful. Just why hadn't Greg told him? When they talked, Greg tried to explain. I didn't tell you I have AIDS because I was afraid if I did, I would have never had the chance for you to get to know me. Greg asked Scott if he could come to Baltimore to talk in person. And I remember he pulled up and I was sitting on the porch of my family and I got in the truck with him and we rode around and he cried and I cried and I remember saying to him, I'm in love with you.

9:29And he goes, but you know I'm going to die. He goes, you know I'm going to die. And I said, but you're not dead yet. And if you drove here and told me that you had a brain tumor, that wouldn't stop me from loving you either. I know what this disease is. I know what I'm in for. And I don't want to miss the opportunity to be with the love of my life because of fear. Scott moved into Greg's barely furnished apartment in Cleveland. They didn't have much money.

9:59They're regularly eating dinners off a cardboard box with a candle on it. But I didn't care. I was in love and it was one of the happiest times of my life. But only a few months into the move, Greg's condition started to deteriorate. He grew weaker and weaker and soon wasn't able to keep up his work as a contractor. Scott wasn't making enough for the two of them, so their financial situation started to look dire. Scott remembers this ritual where they'd sort through the mail to figure out which bills they had to pay and which they could ignore. And one day, Scott remembers seeing an envelope in the stack he'd never seen before, sent by a company called John Hancock.

10:35It was addressed to Greg and he said, oh, this is my life insurance and it's $3,000 and we can't pay that. Now, Scott didn't know much about life insurance at this point. But he did know that at its most basic, you pay premiums while you're alive. And when you die, a bunch of money goes to whoever you told your insurance company to give it to, your beneficiary. In this case, the payout, or the death benefit as it's called, would be $100,000. And I remember that moment thinking, wait a minute.

11:06I'm starting to see the signs of you dying. I've got to figure out how to pay this premium. Scott started by calling the insurance company and asking them if there might be any way to delay or defer Greg's payments. He's really sick and he's not working. Is there anything that you can do? And the insurance company was like, no. They told him if you don't pay the premium by the due date, the coverage terminates. And as Scott learned more about how insurance worked, he came to understand that this strictness was actually baked into the business model. Yeah, the whole way life insurance companies price their premiums is based on the assumption

11:40that many of their customers will either lapse on their payments or drop their policies before they die, leading to no payout. But if Scott and Greg were able to keep Greg's insurance policy in effect, Scott thought that money might be really useful down the road. That would be transformative for me. You'd be able to have something to figure out what I'm doing the rest of my life. Greg also wanted Scott to be able to live a full life after taking on the emotional and financial strain of being his caretaker for the last few years.

12:10So he planned to make Scott the beneficiary. But that still didn't solve the problem of paying the premium. He says the first glimmer of hope came after they told the story of their dilemma at one of Greg's HIV support groups. Afterward, a stranger approached them. He was a very wealthy individual who had also been struggling with his sexuality and had lost people recently in his life who had died of AIDS. And he was like, hey, I want to help. What can I do?

12:41So Scott and this benefactor work out a very loose kind of deal. The benefactor agrees to front them the money so Scott and Greg can pay the life insurance premiums and their living expenses if Scott agrees to repay him after Greg dies using the payout from his policy.

Loans turn into sales

12:56Scott didn't realize it then, but this type of simple deal, a kind man loaning money to a desperate couple with life insurance as their way to pay him back, would eventually evolve into a multi-billion dollar industry. He wrote a check and signed it and I ran and put it in mail and kept calling the insurance carrier and I think they credited it like a day before the policy lapsed. In the months that followed, Scott returned to what he calls their angel investor to borrow money for Greg and his living expenses. The investor gave them the money in $10,000 installments as they needed it,

13:28eventually adding up to $40,000. And Scott says those payments transformed their lives in ways big and small. I remember struggling when Greg was in hospice and they ordered oxygen and the oxygen company came and wouldn't leave oxygen until I gave him a check. And if I wouldn't have had the money, I wouldn't have been able to write him a check to give him the oxygen that he needed to help keep him alive. Within a few months, Greg and Scott had told other people in their aid support groups about what Scott was able to pull off. And some of them started asking if they could get a similar deal.

14:00And at first, Greg and Scott's benefactor loaned to as many as he could, eventually with the addition of interest. But Scott says the benefactor soon ran out of money. So Scott started playing the role of a kind of broker, looking for other investors. He tried some actual banks, but says he was met mostly with hostility. You're taking advantage of these people and that life insurance policy is for their family. Scott says this was one of the first times he experienced this kind of outright distaste for what he was trying to do.

14:30The idea that anyone might profit from the deaths of desperate people. But Scott soon found all sorts of other people who were drawn to this business idea, specifically because of the handsome returns that it promised. And in order to attract them to the deal, he stopped framing it as a loan and instead pitched it as a sale. The idea was the investors would pay the remaining premiums for somebody dying of AIDS, plus a big lump sum to buy the whole policy. That was a key change. The investors themselves would now own the policy and become the beneficiaries.

15:03So when that person dies, they'd get paid directly. Scott, for his trouble, would get a 3% commission on however much the policy sold for. But before he could really sell this thing, investors wanted to understand what kind of return they were going to get. And that meant knowing as accurately as possible when any given policyholder would actually die. Because the longer one of Scott's clients were to live, the more premiums the investors would have to pay. And the longer they'd have to wait for their potential profits. And the question the investors kept coming back with was,

15:36well, you're not a doctor, so how do you know how long he's going to live? And I thought, well, I'm not a doctor, but I could probably find one. Scott finds a doctor in Cleveland who's willing to look at the medical records of Scott's clients and offer his professional opinion on how long he expects each of them might live. That way, his investors could know when their investments might mature. Now, if all of this sounds a bit macabre and you're wondering how in the world this is legal, Scott had to figure that out too. He went as far as becoming a licensed insurance agent in order to answer questions like,

16:09can a stranger buy your life insurance policy? And he learned there's actually a core legal requirement in life insurance called insurable interest, which you'd think would make that impossible. This principle came about in England in the 18th century after life insurance policies became super popular and people started running around essentially betting on each other's lives. The British government, who called this a, quote, mischievous kind of gaming, passed legislation that said people could only take out policies on someone whose death would hurt them financially.

16:41And that principle hopped the pond to the U.S. But in the U.S., there was one important change that made what Scott was doing legal. Back in 1911, the U.S. Supreme Court decided that as long as you took out the policy on yourself, a family member, or someone whose death would hurt you financially, you could then sell it to anyone you want. As Scott was building his business, this evolving financial instrument he was using got its own Latin name, viatical settlements. It roughly means money for a long journey.

17:11But at the same time Scott's new business was taking shape, Greg's health was declining. And by January of 1993, it was clear he was nearing the end. We had hospice and he had a morphine pump. And he kept always wanting me to figure out how to push the morphine pump button. And he would just look at me and say, help me. Please put me to sleep. Just put me out of this. I can't suffer any longer. I can't do this any longer. And I remember just pushing that button and pushing the button and pushing the button until he took his last breath. A couple months after Greg's death, Scott received a check in the mail for the full

17:46$100,000 life insurance policy. He paid back the anonymous angel investor that $40,000 plus the premiums. And with the money left over, Scott decided he actually wanted to build on this life insurance operation that had made his and Greg's life together so much better before Greg died. He knew there were thousands of other men like Greg in desperate need of money right now. And he now knew there was a way to make it profitable and scalable. He and his business partner started taking out ads in gay publications around the country. And their business started ticking upward.

18:18In the early 90s, Scott and one of his clients made it onto the massively popular Phil Donahue show, which introduced this whole concept to viewers nationwide. We got hundreds of letters from people who saw the show who said, can you please help me? I have AIDS. I have a life insurance policy. Please, here's my phone number. Here's my address. Please, help me. Biatical settlements were going national. Within a few months, Scott says he got wind that a new generation of competitors had started to spring up. Many were totally legitimate, but others were a bit more opportunistic.

18:50All of a sudden, you would get these sort of copycat piranhas coming around and smelling blood and water and trying to jump into this business real fast to either deceive the investor or try to rip off the consumer. Some investors and people dying because of AIDS were scammed. Scott says all this helped fuel a regulatory reckoning as states around the country were trying to figure out how to make sure viatical settlements didn't turn into a predatory wild west. Regulators were coming up with a patchwork of new rules around how people could buy, sell,

19:21and broker the policies of people with a terminal illness. Scott says by the late 90s, he had been able to legally broker more than 3,000 viatical settlements for people dying of AIDS. But it was around that time that a new revolutionary generation of drugs came to market that meant people with HIV could now live for decades. Scott says that was obviously a miracle. But for investors, these viatical settlements no longer made financial sense. He and his partner thought their business might be over until they got a call from somebody

19:52with a different terminal illness, cancer. And then we shifted. We were like, wait a minute. There's a cancer market. We can pivot. We're in this little bubble, this little gay HIV AIDS bubble. Let's go mainstream. But it was yet another evolution in this financial maneuver Scott had pioneered that would turn it into something he never quite intended. In the early 2000s, a new crop of big companies realized they could take the same contractual

Wall Street discovers life settlements

20:20logic that had unlocked so much money with viatical settlements and apply it to a much bigger and much more lucrative demographic. Old, rich people. These companies started brokering life insurance sales for people who weren't terminally ill. People who had policies with big payouts, but who might want to cash out early for purely financial reasons. Premiums can get really expensive. Tens or even hundreds of thousands of dollars a year, depending on how big the policy is. These deals got a shiny new name, Life Settlements.

20:50No Latin this time. And this new financial product opened up a new Wild West that would again have to be regulated state by state. This new market was led by a company called Coventry, and it took off fast. Well, Coventry hit the scene as the beast. I mean, they were the 900-pound gorilla. So now Scott's business is getting overshadowed by these massive companies employing fast-talking salespeople like a guy at Coventry named Jonah Khan. Jonah remembers it was tough going in the early days.

21:21First off, life insurance companies were not happy because these deals meant they'd have to pay more death benefits. So one time when Jonah went to this big industry conference... It felt to me like our booth was in the back corner of the conference and they unscrewed the light bulbs above us and no one could find us, you know? And so you're walking around, I'm like, what did I get myself into? Is this really that bad? You know, I know we're doing good things. I know this is, like, helpful to people. Jonah was telling financial advisors about these life settlements, basically saying, every time one of your clients decides to stop paying for life insurance because

21:51it's too expensive or their family doesn't need it anymore, the life insurance company gets to hold on to the money they would have paid out. But with a life settlement, your client can get some of that money now and let the investors walk away with the rest. As Jonah went around giving his roadshow spiel, he also remembers people making what he calls the Tony Soprano objection. Like this one time when he was giving a talk in Wisconsin. Someone raised their hand in the back of the room and, you know, said something to the effect of, like, you know, isn't someone just going to kill my client? And this is the height of the Sopranos.

22:23So everyone's thinking, like, the mob is out there, like, buying these policies up. And the number of Sopranos questions we would get was sort of off the charts. And Jonah's like, no, no, no, no, no, no, don't worry. Coventry's business model is based on buying up a bunch of life insurance policies to hedge against the risk of making any one bad bet. And so the sheer number of policies they buy obliterates any incentive to try to, I don't know, murder any one individual policyholder to get their return marginally sooner. By the early 2010s, Jonah says Wall Street had developed this massive new appetite for life

22:54settlements. After the fallout from the 2008 financial crisis, people were looking for investments that weren't tethered to things like the stock market or the bond market. And life settlements looked like a good place to park their money. As long as the people in their portfolio died on schedule, they would collect the payouts. And those portfolios could be sold and resold in bundles up and down Wall Street. Now the problem for companies like Coventry was finding enough people who actually wanted to sell their policies. So instead of just hitting up financial advisors...

23:25Do you have a life insurance policy you no longer need or can't afford? They started beaming their pitch directly into people's living rooms. Not just rich people, but also regular old retirees who might want a sort of advance from the afterlife to fund their golden years. We planned well for retirement, but I wish we had more cash. Now you can sell your policy for an immediate payment. We sold our life insurance policy and received $130,000. Now we have money to help with the medical bills. Find out if you're sitting on a gold mine.

23:54Scott Page had also pivoted to brokering life settlements to retirees, and he was also advertising directly to seniors. They'd even hired none other than Betty White, arguably the most golden member of the Golden Girls, to convince her fellow retirees that life settlements might be right for them. Hi, Betty! If a baby boomer or senior needs a large sum of immediate cash, what's the best way to get it? Is it A, knock over the local bank? B, start a Wall Street firm and ask for a bailout? Or C, convert your

24:25life insurance policy to a life settlement? It's C, a life settlement. Anyone who has an active life insurance policy can convert it to cash with a life settlement. And the best program... I think hearing these ads was the first time it hit me just how far this industry had transformed. What started as a desperate financial innovation in the middle of an epidemic now sounded a little bit like, call 1-800-FAST-CASH-NOW. And Jonah Khan says a lot of these elderly new clients were selling their policies for way less than they could have because they had zero idea of how much they were worth.

25:00You can't go to Zillow and say my neighbor sold his policy for X so I can sell mine for Y. So it's like, if I tell you it's worth 20 grand, you may believe me. Meanwhile, I know it's worth 300. Eventually, Jonah decided he didn't want to be in the business of buying policies anymore. He left Coventry. And not long after, he got drawn into a different side of the market. He decided to start a brokerage firm representing the people selling their policies, helping them get the best deal they could. And the better their deal, we should add, the more he made on commission. Scott Page, for his part, says that by the late 2010s, he was feeling disillusioned with how abstract the industry had become.

25:36It was to the point of where I was always scratching my head thinking, have we forgotten why we started? Everything was so driven on how much money can we make? Why isn't this person dead yet? Scott ultimately gave up trying to answer those sorts of questions. He sold his business to a private equity firm. He calls it his deal with the devil. And the reason he could sell in the first place is because every year, thousands of aging Americans continue to decide, for whatever reason, that it's better to cash out while still alive than continue paying premiums so others can benefit after they die.

26:12Even the insurance companies themselves have started investing some money in life settlements to hedge their bets.

Frank evaluates his own policies

26:17So that was the state of the industry when Frank Sirowski, the man who fell in love with insurance when he accidentally set his room on fire, saw a Facebook post about life settlements and got intrigued. After the break, Frank walks into this life settlement casino and decides whether or not to go all in.

26:40By the time Frank Sirowski stumbled upon the secondary life insurance market in a Facebook post, it had already morphed and mutated from a few scattered handshakes and benefactors back in the early 90s to an expansive network of investment portfolios traded by some of the biggest hedge funds and private equity groups on Wall Street. Frank, you will remember, is the guy who learned to love insurance as a kid. And as an adult, he'd become an auditor at a major railroad. He'd come to treat financial decision-making a bit like he was playing a giant game of life.

27:11Frank starts reading about how these companies will pay more for your life settlement the closer they think you are to dying. And while Frank has been in remission for a few years, he does have a rare form of cancer that could come back. All over the house, there are framed pictures of him with his family in cubs' hats at stages of their lives he almost missed out on. I've got an adverse health event in my history. That should help my numbers. And so he let his curiosity take the wheel. He had those two life insurance policies he'd taken out before his cancer diagnosis, and the payout would total $1.5 million.

27:45Could he potentially be sitting on a gold mine? Let's go on the internet and fill out some forms. Let's get some pricing. And so I started by doing that, and that's when the people started calling. Frank's being bombarded with call after call after call. These are direct buyers from companies like Coventry. I got Hal, and I got Mike, and I got Matthew, and I got all these people calling from these companies going like, hey, you know, all we need is, like, your consent form so that we can get your health records, and, you know, we'll take it from there. The Howls and Mikes and Matthews of the world are talking him through how easy and fast this could all be.

28:20One of them just flat-out offers Frank $200,000 to seal this deal. ASAP. No medical records needed. Sounds like you were being swarmed a little bit. It was, like, half talking to a guy at the mortuary and the used car place at the same time. Now, for companies on the other end of the phone, Frank's life insurance pad is just one tiny piece in a giant financial board game. For Frank, the stakes are substantially higher. He's talking about selling a big part of his family's security blanket. So if he's going to play this game, he wants to figure out a way to win.

28:54The real way to win, he thinks, is to get a big enough chunk of money now so he can reinvest it in the market and hopefully end up with more money than the $1.5 million his policies were supposed to pay out. So how big of an offer would he need? To figure that out, to essentially put a price on his family's future financial security, he does what any professional auditor would do. Oh, it's a spreadsheet. The only answer is a spreadsheet. The Rosen columns basically show the range of potential offers he could get, and they show how much each of those amounts would grow over the years, depending on different rates of return.

29:29The big sort of unspoken variable in all this, of course, is the number of years Frank has left on this mortal coil. Because, say Frank sold his policies, even if his investments did well, if Frank were to die in the next few years, his family would likely be down hundreds of thousands of dollars. Frank decides that in order to maximize his chances of getting a good offer, he should hire a broker to help him get the direct buyers to up their bids as high as possible. So he calls up the same company Jonah Khan helped start to represent people selling their life insurance policies, a place called Evergreen Settlements.

30:04And the broker explains they'll send Frank's policies and medical records out to potential bidders, and each of them will use some mysterious calculation to figure out the answer to a big question, maybe the big question, which is, when will Frank actually die? Meaning, how soon can they collect their money? Some bidders may think Frank has a year to live, others may say 20, and the difference in their estimates will show up in how much they offer. While Frank was waiting for the first bids to come in, he found himself in this weird place where he was actually sort of rooting against himself.

30:37I was hoping they would come back and say I had 12 months, or six months. You know, the best case scenario is for them to come back and think I'm about to die. Because that means they're willing to pay more because they think they'll get paid faster. As more bids come in, he keeps thinking through the different versions of the conversation he'll have with his wife about all this. You can't help but think what she might say if he sold out the family safety blanket for too little. If he took those initial offers, for example, Frank would have to say, I just sold these for, you know, 30 cents. No, not even that.

31:07It would have been, you know, 20 cents on the dollar. So I think she would have been like, why would you do that? You have a cancer history. Why would you do that? That's stupid.

Accepting the final offer

31:19Finally, the broker tells Frank they've gotten their last and highest offer. It's from Coventry. They're offering $470,000 for both of his policies, which means only 31 cents on the dollar. I was like, ugh. He's like, you're right. I thought it was going to be higher, but here we are. At this moment, Frank has to make a decision about whether to place a massive bet. He consults his morbid spreadsheet and it tells him that if he takes the money and reinvests it aggressively enough to make a 12% annual return over the next 12 years, then he'll make more than his family would get from the payout.

31:53And if his investments don't quite pan out, he'll at least have turned this potential future payout into a liquid pool of money he and his family could use, if need be, while he's still alive. But Frank is also weighing what this risk might mean for his family. Because remember, if he sells his policies for $470,000 minus a $40,000 commission for his broker, when he dies, that $1.5 million will go to whoever owns the policy by then instead of his wife and children. So if he dies earlier than expected, his family will lose a chunk of money.

32:25Do I want the money in my pocket now or do I want to really just sort of keep it for the family?

32:35The kicker is the comparison sucks because the policy means I'm dead. So if I actually get that payout, like I don't get that payout, but maybe my wife and kids do and that's great. But that's also the, I guess, doing the right thing for my family component, where it's like, okay, am I taking away a huge, you know, sort of windfall that could, you know, make my death a little more palatable to them? Right? I mean, I don't know. There are a few ways of thinking about Frank's decision-making process here.

33:09On the one hand, you could see it as a gamble. Getting 12% returns for 12 years is by no means guaranteed. On the other hand, you could look at this as cashing in on a great investment. By this point, Frank has only paid about $20,000 in premiums. So cashing out with $430,000 would mean he'd make more than 20 times his money. Plus, Frank still has another big life insurance policy through his job. So he's not wagering his entire security blanket. For me, I think the thing that struck me most about Frank's whole life insurance journey is the way that he was able to muster this kind of analytical detachment in the face of the greatest, scariest mystery that we all face.

33:51The mystery of our own death. And because of that, he's able to see something like a life settlement with the same cold financial logic as the giant institutions that trade them on the market. You can see them not only as a way of trying to hedge against the great unknown, but as a vehicle for doing the thing at the center of all finance, of moving money through time, even clawing it back from beyond the grave. Plus, you know, it's hard to walk away from $430,000 just being dumped into your bank account.

34:24Frank tells his broker, yes, he will sell. He wants to break money out of the glass box of the future. Frank says a few weeks later, he got a stack of papers an inch thick in the mail to sign. He goes through them with his wife at his kitchen table. She herself actually has to sign away her rights as the beneficiary before a notary. And then they send it all off to make it official. Do you remember when you actually got the money? Frank says he hasn't put all the money into the market since his payout last year.

35:02He used a little bit of it to buy a 20-year-old BMW. And he's using some of it to take his family on a trip to Costa Rica. So for him, this gambit isn't just about winning some game of personal finance. It's also about making the best of the extra time he didn't think he was going to have with his family. But looking back, Frank still has this weird, lingering feeling about this whole thing. The idea that somebody out there has a million-dollar interest in his death. Do I have a bounty on my head, you guys? I think I do. Frank's feeling here encapsulates the core strangeness of this whole transaction.

35:39The fact that he has auctioned off a piece of his own death. Like all of us, Frank will eventually die. And when he does die, a couple of checks are going to get cut in some office building somewhere. Together, they'll be worth $1.5 million. Frank's bounty. Maybe before he's even buried, a bunch of zeros will pop up in some corporate account. And then that money will flow out into the world. Distributed to whoever's invested in his policies. Like spreading Frank's financial ashes to the winds of the market.

36:11And his family will most likely be okay, at least financially. No matter how his investments go. He can afford that risk.

The legacy of the market

36:18That was, of course, not the case for the men signing over their policies as they were dying of AIDS in the early 90s. Scott Page, who helped pioneer that market, says this entire category of financial transaction was created specifically because those men had no other options. This industry would have never been born if people were treated like humans regardless of how much money they have. I think that it's a shame and an embarrassment as a country to have people so desperate that they have to sell assets, whether it's a life insurance policy, their home or whatever, to survive.

36:58Scott says he does understand why so many people have responded to the industry he helped create with feelings of revulsion and unease. This idea that one man's death might be another man's treasure. But in the face of all that need, he improvised a solution within the system we have. A system built on commerce and profit.

37:20Part of what, you know, I used to tell myself and I still do today is every disaster becomes an opportunity. If you can step back and see your way through the fog. And if the governments and philanthropists of the world aren't willing or able to take care of people's needs when disaster strikes, the world of finance can and will find a way to do it. But only if the price is right. We have a quick favor to ask you.

37:56If you haven't already and if you enjoy listening to Planet Money, can you please hit follow for Planet Money on your podcast app? It really helps the show and it means you won't miss an episode or announcement from us. And thanks. This episode was produced by Willa Rubin with help from Emma Peasley. It was edited by Marianne McCune and fact-checked by Sierra Juarez. And we had research help from Barkley Walsh, Katie Doggart, and Greta Pittenger. It was engineered by Sina Lafredo. Alex Goldmark is our executive producer. Special thanks to Brendan Flato and also to Matt Nadel,

38:26who made an excellent documentary on the history of viatical settlements called Cashing Out. I'm Alexi Horwitz-Gazi. And I'm Vito Emanuel. This is NPR. Thanks for listening.

38:40Thank you.