The Birth of the Death Incentive?

Sixty-nine-year-old Bob Fanning may have hit upon a new senior citizen benefit that makes your home a more attractive sell the closer you are to dying, the Chicago Tribune reports.

To stand out from other Wisconsin homes in the real estate glut, Fanning offers this incentive:

The buyer of his home will be named the beneficiary to a 10-year, $500,000 term life insurance policy — if Fanning dies during that time the purchase price of the his home will be covered.

The policy specifies that Fanning can’t commit suicide (unless it’s Gary Becker’s kind of suicide) and nobody can murder him.

Fanning admits he’s in good health, but points out that both his parents and sister died before 79 — he has the medical records ready to prove this to any buyer.

Is this the beginning of a new real estate trend that gives a supreme advantage to the elderly — especially those in poor health — or would this open the doors to a slew of litigation involving forged medical records and “unfortunate accidents,” and discrimination towards the young?

(Hat tip: Kevin Carey)

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  1. Charles D says:

    I predict the hit man industry will be positively correlated with these contracts.

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  2. spork-girl says:

    man, a life insurance settlement would really throw a wrench into THOSE gears.

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  3. Gene Shiau says:

    To #1: The policy doesn’t cover suicide and murder. Remember? You do point to a possible industry boom elsewhere though: genetic screening.

    Here is the catch: with the sale of his home, Mr. Fanning can use that income to further improve his life style and reduce his risk of “Gary Becker suicide.” Ever heard the story of a lawyer paying for elderly people’s monthly living expenses in exchange for inheritance and/or life insurance payout? One of the elderly outlived both the lawyer and the lawyer’s son (who also became a lawyer). It was left to the lawyer’s grandson to continue honoring that contract.

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  4. Dan says:

    I’m pretty sure this is illegal.

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  5. Josh Millard says:

    On the one hand, actually getting an insurance carrier to green light such an odd beneficiary designation on an individual life policy is while doable probably not something that would get far as a trend before the carriers would start raising a lot of eyebrows.

    On the other hand, things like company-owned (and bank-owned) life insurance policies certainly present a working model for life-policy-as-collatoral, so who knows.

    The question in my mind is whether this sort of situation could be effectively slotted into an existing niche or whether it would effectively (if it caught on) spur on the creation of a new specific category of insurance underwriting and management.

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  6. larry says:

    I wonder whether the buyer has an insurable interest in the seller’s life. If not, then the policy won’t pay off.

    It has been decades since I took insurance law and I don’t remember enough of it to know the answer here.

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  7. Nathaniel says:

    Dan- I’m not sure why it would be illegal, it’s perfectly fine to sell your insurance benefits. There was a big stink a few years back about people with HIV selling their life insurance benefits in exchange for monthly income to cover medications, so that their quality of life in the last few months/years would be greatly improved.

    I think this is definitely an interesting idea — if fanning has no other beneficiaries, he may as well use the existing policy as economic leverage to improve his later years. I’d certainly do this if I were in his shoes and felt comfortable with the terms and limitations.

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  8. Elbee says:

    Isn’t this just a discount on the purchase price by the value of the insurance policy?

    Seller 1: I’ll sell you the house for $500,000, but immediately rebate $100,000 to you. You can do whatever you wish with the $100,000, including, for example, putting it on a 5:1 payoff bet in Vegas (or better yet, investing it wisely).

    Seller 2: I’ll sell you the house for $500,000, but buy a 10 year life insurance policy costing $100,000 that, if I die, results in you getting the purchase price back.

    The only difference is that Seller 2 is limiting the buyer’s options as to what to do with the discount. I would take Seller 1′s deal every time.

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