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"When the two years is up, presumably they go back to the old person and say, 'The two years is up. Do you want to take over this policy?'" said Alice Gates, former senior staff counsel for the California Department of Insurance, who examined for SF Weekly documents relating to the Khrlobian and Khachatourians companies. "If the person says yes, they have to pay the money back and pay the premiums. If the person doesn't have the money to take over the policy, the agent says, 'Okay, we'll buy the policy from you.' That's called a 'settlement.'"
This investment scheme is most profitable in cases where the elderly prospect lives beyond the maturation period, at which time the policy's resale value leaps. The most profitable cases of all are those where the senior dies soon after the two-year benchmark. In those cases speculators don't have to eat into their investment capital paying premiums on a person who remains alive. So the trick becomes to find the prospects most likely to live 25 or so months beyond the date the policy is first taken out. "There's a profile of the kind of person they want," Gates notes. "They're pretty picky."
Knowing exactly when somebody will die, is, of course, elusive information, thus making policy-resale deals a high-risk investment. That's because if someone with a life insurance policy lives longer than expected, an investor may have to pay years' worth of premiums while delaying cashing in the death benefit.
"There are risks in this investment, and one risk is people could live longer than it says they can live," explains Jay Colodesch, a Red Bluff Realtor who says his mother invested in an insurance-policy resale scheme, only to have the insured person fail to die. "What upsets me, and her now, is that this was presented to her as a good investment, a sure thing. You just don't know when for sure."
What better way of identifying great targets upon whom to take out multimillion-dollar life insurance policies than to collect extraordinarily detailed information on people in their twilight years?
In exchange for $1,000, seniors responding to Lighthouse Insurance Marketing end up giving much more than answers to a questionnaire. They are asked to sign in the presence of a notary an "irrevocable durable power of attorney" guaranteeing access to their detailed medical information.
Seniors who take up the offer fill out IRS W-9 forms certifying their Social Security numbers and sign agreements guaranteeing access to their death certificates once they die. And, in an unusually vague portion of the contract, they sign agreements that allow "any person or persons" to conduct unspecified "transactions" based on subjects' "mortality."
The agreement Cranford's mother was offered did use strangely garbled language to say that companies could continue undertaking "longevity transactions" as long as she was alive, and that these could involve huge sums. "The individual also agrees that such Longevity Transactions may be made from time to time at any time prior to the death of the Individual and that funds any counterparty pays, or is to be paid, under a Longevity Transaction based on the Individual's mortality or longevity are not limited in amount," the contract reads.
I asked Manson to clarify. "The purpose of the survey is, as it says in the brochure, is that it is a survey intended to allow the Survey Trust to market proprietary data, to do proprietary and academic research, and to engage in morbidity and longevity financial transactions," he said.
Again, I asked Manson to explain those terms. "That's a complex question," he said. "I wish you'd leave Lighthouse's name out of it."
For complex questions involving dubious insurance schemes, the California Department of Insurance has a whole staff of investigators and attorneys. Insurance Commissioner Poizner should demand an inquiry such as the one currently under way in Idaho. Next, he should seek to shut down this misleading attempt to gather sensitive medical information from seniors. And he should get to the bottom of whether this information is destined to play a part in a macabre for-profit death pool.
If Poizner fails, members of the state Assembly and Senate should call for hearings aimed at figuring out precisely what it is these companies plan to do with the sensitive medical records they're collecting.