How the AIDS Crisis Helped Create a Multibillion-Dollar Life Settlement Market
NPR reports on the life settlement market's origins in the AIDS crisis and how patients like Frank Sierawski can sell their life insurance policies to investors.
Sierawski, now 47, was diagnosed with a rare form of Stage IV lung cancer over a decade ago. After taking out two life insurance policies before his diagnosis, he later learned through a Facebook group for cancer survivors that he could sell those policies to investors for a fraction of their face value. The investors then pay the premiums and collect the full payout when the insured person dies.
The market has its roots in the AIDS crisis of the 1980s, when patients with terminal illnesses needed cash for medical care. Loose handshake deals evolved into an abstract financial asset, with policies now bundled into large investment portfolios. The Supreme Court played a key role in legalizing the practice.
In a 1911 ruling, the Court held that a life insurance policy taken out under proper rules is a piece of property that the policyholder can sell to anyone. This was a compromise between preventing "pure wagers" on strangers and allowing policyholders to dispose of their own assets.
The report notes that Sierawski, a finance-minded individual, suspected his cancer history might lead to a better offer. After filling out online forms, he received a flood of calls from companies interested in buying his policy. He described the realization as "mind-blowing," saying, "It's an asset I didn't know I had."