Here’s a shocking way to arbitrage the insurance market.
Find terminally ill people and pair them up with investors. Then have the investors pay the terminally ill for the right to benefit from insurance policies once the ill die.
Pick someone with a short lifespan and you could reap huge returns.
“Terminal Illness? $2,000 in CASH, Immediately Available.”
That was the promise of an advertisement that appeared regularly in 2007 and 2008 in the Rhode Island Catholic, the official newspaper of the local diocese. The money, the ad said, was coming from a “compassionate organisation” that wanted to provide “financial assistance” for those near death.
In reality, the ad was a recruiting pitch for a plan hatched by a prominent Rhode Island estate-planning lawyer, who believed he had discovered a way to use an investment product sold by insurance companies to make no-risk bets on the stock market. He recruited dozens of terminally ill people to, in effect, serve as paid fronts for purchases of the product, variable annuities. The lawyer and other investors put tens of millions of dollars into the policies, hoping to reap a profit when the recruits died.
According to a lawsuit brought by Aegon NV, one of its units issued an annuity in Ms. Bulpitt’s name in October 2008, and a total of $1 million was soon put into it. Ms. Bulpitt died less than four months later, at age 49, as the stock market was approaching its low. When the Caramadre employee submitted a death-benefit claim in June 2009, the account was less than the original $1 million, according to a spokesman for Mr. Caramadre. But Aegon repaid the full $1 million, plus $13,000 from an interest rate built into the death benefit.
Mr. Bulpitt, who says he recently testified before a federal grand jury, says his wife wasn’t told about any annuity. He says “they took advantage of my wife. Don’t get me wrong, I was out of work. The money was definitely needed.” Still, “I think they’re scumbags for preying on the sick and suffering like that.”