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Sep 17, 2015 by |

Russian Roulette: Life Insurance Companies Buy Into Big Risks

It’s been a long time since life insurance was a risky business. In the last century and a half, reformers have created a sold, staid industry that is compelled by law to invest the bulk of its customers’ money in low-yield, low-risk bonds that are guaranteed to produce the returns policyholders expect. However, some big insurers are getting antsy about following the rules, and are skirting state and federal regulations to try to match the big payouts of financial firms on Wall Street. Life insurance is an $18 Trillion dollar business, and executives and shareholders would like to see a little more of that go into their own coffers rather than their customers.

A recent, conspicuous case in which Insurance companies deviated from the traditional model was the purchase of stock in Caesar’s Casino by the parent company of Athene Life Insurance. While it may seem wildly inappropriate for an industry supposedly devoted to minimizing risk to buy stock in a failing casino, this apparently presented no problem to executives, who presented to purchase as simply another safe bet for policyholders. However, the company that operated the casino went bankrupt, and Aviva’s parent company lost millions.

A recent trend toward “innovative” life insurance products is another indicator of an increased industry appetite for risk taking, and a willingness to pass that risk on to policyholders. Complexity is no guarantee or performance, and many insurance products have raised eyebrows among regulators and attorneys. In addition, life insurance companies have taken to large-scale tricks to shunt risk into subsidiaries and skirt rules requiring them to possess enough capital to fulfill all future life insurance claims. All this to avoid the industry “problem” of “redundant reserves”; namely, the funds they owe to policyholders. Rather than keep this safely in the bank, insurers want to make the big time investments that they feel their cash reserves qualify them for.

It’s bad enough to gamble with borrowed money, let alone gambling with someone’s life. Financiers who want to play high stakes game should try another industry, and keep life insurance as a bedrock investment for seniors and retirees. If you feel that you have been the victim of a fraudulent or improperly administered life insurance policy, contact The Evans Law Firm at (415) 441-8669. The Firm handles elder abuse (physical and financial), annuity and long term care fraud cases, elder law and estate planning (including living trust and will packages, powers of attorney, probate matters, Medi-Cal planning, estate administration, trust administration, will and trust contests, specialized trusts including special needs trusts, and conservatorships), and consumer fraud class actions involving insurance and banking fraud claims.

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