How Death Bonds Work

CATEGORY: Death Bonds, How-To

DIVISION: Products, Investments

NOTE: This instructional brief is meant as a quick overview on how Death Bonds work. For more details, consult a professional broker [coming soon to Modern Evil].










Profiting from Mortality

Death bonds may be the most macabre scheme ever. Investors buy up life insurance policies, securitize them, and collect when the insured persons die.


The Seller

A person, typically 70 or older, who wants to cash out of a life insurance policy hires a "life settlement" broker to find prospective buyers. The buyers keep paying the premiums until the seller dies, and then they collect. The up-front payout to the seller varies widely, from 20% of the death benefit to 40%.


The Broker

A person paid to link buyers and sellers, this player typically seeks three bids from specialty finance firms called life settlement providers, which are often financed by hedge funds and investment banks. Commissions, paid by the seller, usually range from 5% to 6%.


The Provider

The life settlement provider resells the insurance policy to a hedge fund or investment bank, which warehouses it in order to build a big pool of policies.


The Investment Bank/Hedge Fund

After a bank or hedge fund collects a sufficient number of policies, typically 200, it turns them into asset-backed securities called death bonds to sell to investors. The pitch: Death bonds will produce steady returns (around 8%) and aren't correlated with stocks, bonds, commodities, or other investments.


The Investor

Hedge funds and other big investors are already buying up death bonds in Europe and expect a big bond issue in the U.S. soon. Institutional investors are especially attracted to uncorrelated assets, which make their portfolios less volatile.


The Bond Rater

Big debt-rating agencies such as Moody's Investors Service and Fitch Ratings are soon expected to start issuing ratings on death bonds in the U.S., opening the market to other big investors including mutual funds. Moody's has already rated at least one death bond issue, although it subsequently pulled the rating when the provider was charged with fraud.

Insurable Interests are Everywhere

CATEGORY: Death Insurance, Secret, Law Suit

DIVISION: Products

NOTE: Breaking the waves as usual is WalMart, by taking out life insurance policies on their employees without their employees knowledge or consent. Fantastic! We at Modern Evil believe this is a wonderful new revenue stream and can be applied to every business.

By the fall, we will provide an easy Do-It-Yourself life insurance kit called "Insurable Interests", complete with a registered insurance company, so that everyone can take out life insurance policies on their employees, strangers, or anyone.








Husband Files 'Dead Peasant' Suit Against Wal-Mart for Collecting Insurance in Spouse's Death

By Emanuella Grinberg

Court TV

When Karen Armatrout died of cancer in 1997, her husband, Richard, collected a modest amount in life insurance benefits from her employer, Wal-Mart.

But Armatrout claims that, unbeknownst to him, Wal-Mart also collected on a life insurance policy, one the company took out on Karen Armatrout years before without her knowledge.

This week, Armatrout filed a class-action complaint seeking what his lawyers estimate might be $80,000 in benefits that Wal-Mart supposedly collected "in bad faith" on a corporate-owned life insurance policy.

Armatrout's "dead peasant" suit, filed Wednesday in Tampa, Fla.'s U.S. District Court, accuses Wal-Mart ofmaking money off her death without having a valid claim to her estate.

Typically, such a stake, known as an "insurable interest," is reserved for individuals so closely connected to the person insured that he or she would suffer significant financial damage if the person died.

The complaint also charges that the Arkansas-based corporation misappropriated Karen Armatrout's name and personal information for the purposes of taking out the policy.

"Wal-Mart and the insurers used employees' private information to buy and sell policies," Armatrout's Texas attorney, Mike D. Myers, told CourtTVnews.com. "As matter of public policy, Wal-Mart should not be permitted to keep the policy's benefits because it did not have the necessary insurable interest in the lives of its rank-and-file employees to warrant being a beneficiary."

From 1993 to 1998, Wal-Mart was not alone in reaping the tax benefits associated with corporate-owned life insurance, which came to be known by critics as "dead peasant" insurance, based on a character in Nikolai Gogol's "Dead Souls" who buys up the contracts of recently deceased serfs.

Lawyers for Armatrout, who say that Wal-Mart took out such policies on 350,000 "rank and file" employees like Karen Armatrout during that time, have also participated in lawsuits against Golden Corral, Winn Dixie and Camelot Music.

The attorneys, who have brought three identical lawsuits against Wal-Mart in Texas, Oklahoma and Louisiana, say the company made use of favorable tax regulations in Georgia, which allowed the company to take out corporate-owned life insurance policies without the employees' knowledge.

Wal-Mart settled the suits in Texas and Oklahoma, where the company paid back 100 percent of the benefits, amounting to just over $5 million.

Along with Armatrout's case in Florida, another suit is pending in Louisiana.

In the previous cases, Wal-Mart attempted to argue that Georgia law applied because that was where the policies were purchased and paid out. But the courts found that the proper venue for deciding whether Wal-Mart had an insurable interest was thedeceased's state of residence.

Only six states, Delaware, Georgia, New Jersey, North Carolina, Pennsylvania, Vermont, allow companies to take out life insurance policies on their employees without notifying them. Most states have laws requiring that companies advise their employees and seek their consent before purchasing the policies.

Myers says he is hopeful that the precedents set in the other cases bode well for the Florida case, where he is seeking class-action certification for an estimated 80 plaintiffs in addition to Armatrout.

"I'd rather be where we are now rather than after losing three in a row," Myers said.

Representatives for Wal-Mart did not return calls for comment.