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)


Jason

I wouldn't want anyone's death to be good news.

di

Interesting end-of-life possibilities here.

There are occasional situations (usually spousal or child abuse) where disconnecting life support on a brain dead individual will lead to a murder charge, so there is a fight by the suspect to keep the victim on life support. Would the same thing happen here--the beneficiary suing to pull the plug on the guy before the time runs out? Relatives trying to keep him on it until 10 years and one day?

dave

Great idea if you don't have anyone else to leave it to! Why not? Can't go to the grave with your money. Who pays the premium on the insurance policy after you buy the house? equalopportunityracist.bloghi.com

wjcollier3

to larry (#6), the beneficiary does not have to have an insurable intrest. that is why i can name anyone or any organization, such as your favorite non-profit, as the beneficiary. only the owner of the policy contract is required to have an insurable intrest. it could be owned by the home's seller and possibly co-owned by the home's buyer. it might be possible to name the home's seller as the owner but stipulate in the real estate contract that upon closing (or some stated period after) the policy ownership will be transferred to the home's buyer. i think this would be a complicated, but possible, transaction. i do not know what the real estate values in wisconsin (where this home is) look like, but around where i live, i would probably be worth the hassle.

Josh Millard

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.

Elbee

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.

Mike

may be interesting to see how this plays out, especially other variants as the column alludes to.

In France, its legal to sell your inheritance in return for a regular income. There was a "news of the weird" story a while back about an elderly lady in failing help who did that; turns out she lived for years afterwards, outliving the man who bought her estate. Apparently his heirs are required to continue the payments until she finally passes on.

spork-girl

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

Nathaniel

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.

Charles D

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

Dan

I'm pretty sure this is illegal.

Gene Shiau

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.

larry

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.

Brownsugar

In France ,you can buy an real estate property "en viager" and pay until the seller dies :it guarantees a revenue (and sometimes a home ,because you can keep the right to use the property) to the seller until the end of his life,and it may be a winning bet for the buyer.

Jeanne Calment sold her appartment this way when she was 90,in 1965.It might have looked like a good deal at that time.
But when the buyer died 30 years later ,Jeanne Calment was (at least legally) the oldest living woman alive.She died in 1997.

Anna Turtle

Another problem with this whole setup: while the policy will not pay off in the event Fanning commits suicide, Fanning may still go ahead and commit suicide, in which case the home buyers get nothing.

This policy would have some perverse incentives and it does not serve the typical purpose of life insurance. I doubt insurance companies would be too thrilled to write it.

Matt Rosen

Actually, this idea has already been developed into a marketable financial product for Seniors who are looking to create liquidity without incurring debt or selling assets. Check out www.equitykey.com to learn more about how it's done.

Bruce Boston

I predict an increase in the cost of 10-year $500k Term Life Insurance Policies sold to 69-year olds about to sell their homes.

btw, how cheap could this be today? Heck, if they are that cheap, why link it to the sale of a house?

What stops someone from simply selling 'beneficiary rights? Maybe a new way to finance one's retirement, but at the cost of insurance companies.

I'm gonna bet that insurance companies have better math models than either the would-be buyer or would-be seller of such a transaction...