Sell your life to a stranger?

Sell your life to a stranger? - You may be able to get cash by selling your life insurance policy to an investor. Here's how to find out whether it's a smart move.

If you've heard anything about the life settlement industry, it's probably because of deals that went wrong.

Life settlement is the practice of selling your life insurance policy for cash to investors who continue paying your premiums and who collect the death benefit when you die.

The practice has been around for a few decades, but it gained notoriety starting in the mid-2000s after hedge funds became big investors, wealthy people began buying policies specifically to flip them and many individual investors got burned by people who hung around much longer than their life expectancies suggested.

Here are just some of the cases that made headlines:

• Talk-show host Larry King sued an insurance brokerage in 2007, saying he was paid too little for the $15 million in policies he sold and wasn't told how tough it would be to get affordable replacements.
• The widow of a wealthy Manhattan lawyer sued after learning her late husband bought $56 million in life insurance coverage and quickly sold it to investors. She argued the death benefits should have come to her.
• An 81-year-old man in Los Angeles sued his agent, an insurance company and a bank after he said he was persuaded to pay $690,000 in premiums for a $6 million policy, only to find out there were no investors who wanted to buy it.

The idea of giving strangers a financial interest in your death may strike you as kind of creepy. But life settlement is a legitimate option for older people who have policies they no longer need, said Darwin Bayston, the executive director of the Life Insurance Settlement Association, an industry trade group.

What's your policy worth?

"So much of our senior population is just not prepared for retirement," Bayston said, noting that selling unneeded life insurance policies could be an alternative to selling a family home or using a reverse mortgage to tap the home's equity for cash. "Maybe their policies have value. . . . They can take a look at it and see what it might be worth."

The answer could be: not much. The recent boom in life settlements ended with the 2008 financial crash, which wiped out most of the market for what Bayston calls "manufactured STOLI," or stranger-originated life insurance, that was taken out by rich, healthy people to sell for a quick profit. Changes in life-expectancy tables -- actuaries figured out we were living longer -- dealt the industry another blow.

Today, most of the business involves policies owned by seniors in poor health, and "it's a buyer's market," said Glenn Daily, a fee-only insurance consultant who evaluates policies for investors and sellers.

The institutional investors that buy most policies -- big banks, pension funds, hedge funds, even life insurance companies -- are looking for a sizable expected return, typically in the range of 15% to 20%, after accounting for the policyholder's life expectancy and the cost of future premiums. Broker commissions and other costs further reduce the potential payout to sellers.

Often, Daily said, "people are disappointed."

"They think there's this pot of gold they can take advantage of," said Daily, who evaluates individual polices for a $1,895 fee. "They find out their policy is worth 10 cents on the dollar, or you go through the work (of trying to evaluate its worth) and it's worth nothing."

When is a life insurance policy most likely to have value in this market? Here are some guidelines, according to Daily:

• It's a cash-value policy, particularly a universal life policy. Cash-value policies, also known as "permanent" insurance, combine a death benefit with an investment component that builds up value over time. Term insurance, which is pure insurance with no investment component, typically has no value unless the owner's death is imminent.
• The policy has a face value of $250,000 or more, although some investors specialize in big portfolios of smaller-value policies.
• The owner has a life expectancy of 15 years or less. As you might expect, the shorter the life expectancy, the more the policy may be worth.

The policy also typically needs to be at least two years old and cover only one person. So-called second-to-die policies that cover couples are usually valuable only if one of those covered is already dead.

How to sell

To sell a policy, you'll need to work with an insurance agent or broker who specializes in this market, but you also should have an independent adviser -- such as an attorney, CPA or financial planner -- who isn't earning commissions from the sale.

Here's what to do:

• Make sure you no longer need the policy. The factors that are most likely to make your policy valuable -- you're over 65 and in poor health -- mean you're unlikely to qualify for new insurance. So review why you bought the policy in the first place, and make sure the need you were trying to cover is no longer there. If you still have people financially dependent on you, for example, you may still need insurance.
• Consider your alternatives. If you need money, you typically can borrow against your policy's cash value and still keep your coverage in place. You also may surrender your policy to the insurance company for cash, although your payout could be less than you'd get from a sale. If you're considering selling your policy because you can no longer afford the premiums, talk to your insurer about your options. You may be able to lower or skip premiums if you have a lot of cash value in the policy. Another option: Ask your kids or other beneficiaries to take over the premium payments. This is often the best option if your life expectancy is very short, since selling the policy would net you only a fraction of what the policy will shortly be worth.
• Get several offers, if you can. This market is neither efficient nor robust, and some policies will generate little interest. But push your broker or agent to bring you more than one or two offers, since otherwise you may be presented with only the offers with high commissions attached.
• Negotiate commissions based on the purchase price. Some brokers try to claim a commission based on the policy's face value, regardless of the amount they eventually get for you. Daily says that's wrong, and that you should base the commission you pay on the purchase price. "You shouldn't have to pay more than 10% if you're a responsible seller who appreciates the business reality of the broker," Daily said. "If the broker can make a good case for charging more, then I'd be willing to listen. But this market has a history of taking advantage of policyholders, so you're justified in being skeptical." ( msn.com )
  

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Five myths about nuclear energy

Five myths about nuclear energy - Explosions. Radiation. Evacuations. More than 30 years after Three Mile Island, the unfolding crisis in Japan has brought back some of the worst nightmares surrounding nuclear power — and restarted a major debate about the merits and the drawbacks of this energy source. Does nuclear energy offer a path away from carbon-based fuels? Or are nuclear power plants too big a threat? It’s time to separate myth from reality.

1. The biggest problem with nuclear energy is safety.

Safety is certainly a critical issue, as the tragedy in Japan is making clear. But for years, the the biggest challenge to sustainable nuclear energy hasn’t been safety, but cost.

In the United States, new nuclear construction was already slowing down even before the partial meltdown at Three Mile Island in 1979; the disaster merely sealed its fate. The last nuclear power plant to come online started delivering power in 1996 — but its construction began in 1972. Today, nuclear power remains considerably more expensive than coal- or gas-fired electricity, mainly because nuclear plants are so expensive to build. Estimates are slippery, but a plant can cost well north of $5 billion. A 2009 MIT study estimated that the cost of producing nuclear energy (including construction, maintenance and fuel) was about 30 percent higher than that of coal or gas.

Smoke billows from fires raging at the port in Tagajo, Miyagi prefecture on March 13, 2011 following a massive earthquake and tsunami on March 11

Of course, cost and safety aren’t unrelated. Concerns about safety lead to extensive regulatory approval processes and add uncertainty to plant developers’ calculations — both of which boost the price of financing new nuclear plants. It’s not clear how much these construction costs would fall if safety fears subsided and the financing became cheaper — and after the Fukushima catastrophe, we’re unlikely to find out.

2. Nuclear power plants are sitting ducks for terrorists.

It’s easy to get scared about terrorist attacks on nuclear plants. After the Sept. 11 attacks, a cottage industry sprung up around the threat, with analysts imagining ever-more horrific and creative ways that terrorists could strike nuclear facilities and unleash massive consequences.

There are certainly real risks: Nuclear expert Matthew Bunn of Harvard University has pointed out that well-planned terrorist attacks probably would produce the sort of simultaneous failures in multiple backup systems that Japan’s reactors are experiencing. But it’s much harder to target a nuclear power plant than one might think, and terrorists would have great difficulty replicating the physical impact that the March 11 earthquake had on the Japanese plants. It also would be tough for them to breach the concrete domes and other barriers that surround U.S. reactors. And although attacks have been attempted in the past — most notoriously by Basque separatists in Spain in 1977 — none has resulted in widespread damage.

Certainly, the water pools in which reactors store used fuel, which reside outside the containment domes, are more vulnerable than the reactors and could cause real damage if attacked; there is a debate between analysts and industry about whether terrorists could effectively target them.

3. Democrats oppose nuclear energy; Republicans favor it.

Yes, the GOP base is enthusiastic about nuclear energy, while the Democratic base is skeptical. Moreover, many Republican politicians support assistance to the industry such as loan guarantees for nuclear developers, while many Democrats oppose them. But the politics of nuclear power have changed in recent years, mainly because of climate change.

Democrats, including many supporters in the environmental movement, have become more open to nuclear power as a large-scale zero-emissions energy option. Steven Chu, President Obama’s energy secretary, has been enthusiastic about the nuclear option. When asked to compare coal and nuclear energy in 2009, Chu responded: “I’d rather be living near a nuclear power plant.”

The biggest prospective boost for nuclear power in the past two years was an initiative championed by Democrats and scorned by Republicans: cap-and-trade legislation. Cap-and-trade would have penalized polluting power sources such as coal and gas emitters, thus tilting the playing field toward nuclear power. Department of Energy simulations of the ill-fated Waxman-Markey climate bill projected that it would have increased nuclear power generation by 74 percent in 2030.

Yet although Democrats may have become more accepting of nuclear power, few became fully enthusiastic. Japan’s tragedy may make many reconsider their stance.

4. Nuclear power is the key to energy independence.

When people talk about energy independence, they’re thinking about oil, which we mostly use in vehicles and industrial production. When they talk about nuclear, though, they’re thinking about electricity. More nuclear power means less coal, less natural gas, less hydroelectric power and less wind energy. But unless we start putting nuclear power plants in our cars and semis, more nuclear won’t mean less oil.

This wasn’t always the case: During the the heyday of nuclear power, the early 1970s (45 plants broke ground between 1970 and 1975), oil was a big electricity source, and boosting nuclear power was a real way to squeeze petroleum out of the economy. Alas, we’ve already replaced pretty much all the petroleum in the power sector; the opportunity to substitute oil with nuclear power is gone.

5. Better technology can make nuclear power safe.

Technology can increase safety, but there will always be risks with nuclear power. The Japanese reactors at the center of the current crisis use old technology that increased their vulnerability. Next-generation reactors will be “passively cooled,” which means that if backup power fails like it has in Japan, meltdowns will be avoided more easily. (Passive-cooling systems vary, but their common feature is a lack of dependence on external power.) Other lower-tech improvements, such as stronger containment structures, have also mitigated risk.

But what happened in Japan reminds us that unanticipated vulnerabilities are inevitable in any highly complex system. Careful engineering can minimize the chance of disasters, but it can’t eliminate them. Operators and authorities will need to make sure that they’re prepared to deal with unanticipated failures even as they work to prevent them.

Most energy sources entail risks. In the past year, we’ve seen an oil spill in the Gulf of Mexico, fatal explosions at the Upper Big Branch coal mine in West Virginia and now the crisis in Japan. The American public will need to decide whether the risks of nuclear power — compared with those of other energy sources — are too high. ( washingtonpost.com )

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Red-light cameras save lives

Red-light cameras save lives - Red-light cameras are saving lives even as they make millions in revenue, according to the first definitive study of the subject.

Use of cameras to catch speeders and those who run red lights has proliferated in the past decade, greatly increasing the prospect that drivers in too much of a hurry will get caught. The flash of a camera has become common at District intersections, more than 50 of which are equipped to catch red-light offenders.

A study to be released Tuesday by the Insurance Institute for Highway Safety finds that traffic fatalities at those intersections dropped by 26 percent over a five-year period, slightly more than the average decline in 13 other camera-equipped cities.

A mobile speed camera vehicle sits on New York Avenue NE just before the red light at Bladensburg Road in the District. (Mark Gail/the Washington Post)

"We're hopeful this will stop some of the backlash against cameras," said Adrian Lund, president of the insurance foundation. "Much of the attention to victims of the camera has been paid to people who received tickets. Hopefully, this will return the focus to the people who have been killed or injured by red-light running."

Drivers often denounce use of the cameras as a naked money-making scheme - and the District made almost $7.2 million on 85,678 red-light tickets from June 2009 through May.

At the same time, almost anyone who regularly drives District streets will attest to the fact that drivers slow in places where they know speed cameras are located and are more likely to stop on yellow at intersections with red-light cameras.

"Our traffic fatalities have been cut in half in four years," said D.C. Police Chief Cathy L. Lanier. "We see less high-speed crashes, we see less crashes at what used to be the worst intersections. Because of speed enforcement, when people do crash, it's at a slower speed, so there are less likely to be fatalities."

Lanier also said the cameras conserve police resources. "Those automated enforcement programs can take the place of 100 officers. In order to have the same effect with police officers, I'd have to divert them from crime-fighting."

The institute study said there were five fewer deaths at the District's camera-equipped lights over five years. During that same period across the country, 159 fewer people died in the cities that use cameras, the study found. If cameras had been in use in all cities with populations above 200,000, the institute projected that 815 lives would be saved.

The report looked at 14 cities that had camera programs from 2004 to 2008 and compared their accident rates with those of 48 cities that did not have cameras during the same period. The report acknowledged that earlier studies found an increase in rear-end collisions when red-light cameras were installed. But it said that because right-angle crashes cause more severe injuries and damage than rear-end ones, the net effect was positive.

The institute used police reports gathered by the federal government to analyze intersection mayhem. The 2.2 million intersection crashes recorded in 2009 made up about 41 percent of all accidents. They resulted in 81,112 serious injuries and 7,358 deaths.

Police established red-light running as the cause of 676 deaths and 113,000 injuries. The vast majority of the people who died - 64 percent - were not driving the vehicle that ran the light. They were passengers, other drivers, pedestrians and cyclists.

"This is a solid report," said John B. Townsend II of AAA Mid-Atlantic. "It offers evidence that the program is changing behavior. Of all the forms of automated enforcement, this one's going to stay because the one thing people fear is a T-bone crash."

A survey of D.C. drivers in December by AAA found 8 percent opposed red-light cameras.

"There simply are not enough resources to put a police officer at every intersection, and enforcement at intersections is often dangerous," said Barbara Harsha, executive director of the Governors Highway Safety Association. "We have known for years that when the public sees a law being enforced, they will respect it and drive more safely. That has been true with drunk driving and seat-belt laws, and it is also true with red-light cameras."

However, traffic cameras still enliven constituent hotlines as angry drivers who have gotten tickets in the mail berate people who pick up the phones for legislators and council members.

"A lot of people accuse us of tricking them," Lanier said, "but we publish the location of all the cameras on our Web site. We're not trying to hide where they're located from anyone."

Two legislators have introduced bills in Richmond to restrict use of the cameras. One would restrict local jurisdictions from deploying new red-light cameras; the other would require that their use be overseen by the Virginia Department of Transportation.

"We're opposed to the first bill," Townsend said, "and we think the second one would put an onerous burden on the process." ( washingtonpost.com )

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