‘Death bets’ rattle life insurance industry

They call them death bets.

You are, say, a 65-year-old man strapped for cash. You take out a multimillion-dollar life insurance policy and sell it to an investor for a nice chunk of change. The investor pays the monthly premiums. When you die, the investor collects the death benefit.

This secondary market in life insurance policies, or stranger-originated life insurance, boomed in the middle part of the last decade, with thousands of elderly people taking out policies on their own lives and selling these policies to investors, according to a Jan. 2 report in the Wall Street Journal. This market is worth billions of dollars a year for investors.

But when this market burst, along with the rest of the economy in 2008, insurance companies wanted to recoup their losses. They filed lawsuits to stop paying the benefits, claiming the policies never were intended to help an elderly person plan his or her estate. Investors have filed counter-lawsuits, claiming the insurers changed the rules in midstream. And, according to the Wall Street Journal, some relatives of the deceased are suing to cash in on the benefits that the investors are trying to collect.

Investors have grabbed for billions of dollars by making “death bets” in the secondary life insurance market.

One of the lawsuits was filed in Texas against American International Group Inc., with an investor alleging that AIG welcomed these secondary life insurance policies to boost company revenue. AIG denies the allegations in court filings, and alleges misrepresentation and fraud on the part of the investors, the Wall Street Journal reported.

Pay the light bill or the health care bill

Adults in the United States are far more likely to go without health care because of high costs than their adult counterparts in 10 other nations, according to a recent report by The Commonwealth Fund, a private foundation that conducts independent research on health care policy.

Because of the costs, 33 percent of U.S. adults went without recommended care, did not see a doctor when sick or did not fill prescriptions, compared with 5 percent to 6 percent of adults in the Netherlands and the United Kingdom, according to the report.

“The U.S. is the only country in the study where having health insurance doesn’t guarantee you access to health care or financial protection when you’re sick,” Cathy Schoen, senior vice president of The Commonwealth Fund, said in a news release. “This is avoidable — other countries have designed their insurance systems to value access and limit out-of-pocket costs.”

The survey included interviews of about 19,500 adults in the United States, Australia, Canada, France, Germany, the Netherlands, New Zealand, Norway, Sweden, Switzerland and the United Kingdom.

Fake therapist reaped money from claims

From 1998 to 2002, John Lundy of New Jersey told patients and insurance companies that he was a licensed physical therapist. He submitted more than $300,000 in claims to insurance companies, mostly for services delivered to people injured in auto accidents.

Companies such as Liberty Mutual Insurance, Allstate, State Farm and First Trenton Indemnity believed Lundy — and paid his claims.

Problem is, Lundy wasn’t a licensed physical therapist. And when NJM Insurance Group turned Lundy in to New Jersey’s Office of the Insurance Fraud Prosecutor, Lundy’s days as a rogue physical therapist were over. A grand jury originally indicted Lundy in November 2006 and set his trial for December 2007, but Lundy was a no-show and remained on the lamb until Sept. 10, 2010.

On Jan. 3, 2011, Lundy confessed to all of the alleged wrongdoing, including second-degree health care claims fraud. Lundy faces a five-year prison sentence under terms of a plea agreement. He also will be required to pay more than $130,000 in restitution, according to the New Jersey Attorney General’s Office, and he faces civil insurance fines. Lundy is scheduled to be sentenced in March 2011.

–Kevin Lyons