Death bonds, more formally known as life settlement securitizations, offer investors the ability to receive life insurance pay outs from elderly people with a short remaining life expectancy, once they pass away.
Standard & Poors, while not yet having the gall to rate these securities, has issued some guidance on the potential pitfalls of investing in other people’s death.
What’s the best part about buying death bonds? While rather untested as an asset class, many find them a great form of diversification. Really, that’s S&P’s conclusion. Yep, people die no matter where the market goes.
FTAlphaville: What is a life settlement securitization?
Life settlements, sometimes referred to as senior or elder settlements, involve the purchase of life insurance policies from individuals, typically age 65 and older, who have various ailments or suffer from a particular disease and whose projected life expectancy is typically between two and 10 years. An investor trust buys the policies and assumes the responsibility to pay the policy premiums when due and the right to receive the policy benefit when the covered individual dies. The insurance policies are pooled and then repackaged as bonds and marketed to investors. The benefits of the policies go toward paying principal and interest on the bonds.
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