What Are Life Insurance Death Bonds?: Shootin’ It Straight With Stan

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Welcome to Shooting Straight with Stan.

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I'm your host, Stan the Annuity Man,

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America's annuity agent, licensed in all

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50 states of Puerto Rico. Today's topic

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is a very interesting one, a little bit

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off topic from the annuity industry, but

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I get a lot of questions about this. So,

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the title is going to draw you in, but

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I'll explain it. It's what are life

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insurance death bonds? And you're

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thinking, what is that? The grim reaper

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of bonds? Maybe. Kind of. Remember, life

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insurance companies have the big

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buildings for a reason because they know

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when we're going to die. Nod your head.

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They also they also issue annuities. All

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annuity types. So, life insurance

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companies issue annuities. Those are

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contracts between you and the life

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insurance company. But if you look on

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cable television at all and you see

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these ads for do you own a life

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insurance policy, you know, you're you

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might be sitting on a gold mine, all

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that stuff. pretty pretty cool

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advertising. But

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what they're talking about are life

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insurance policies that can be sold.

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There's also a group out there that's

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that buys annuities as well. All right.

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Um annuities in payout form. They'll pay

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for it. You got to say, "Wait a minute.

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What's the catch, Stan the Annuity Man?"

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So, let's talk about the life insurance

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side. You know, life insurance is the

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best return on investment you'll you'll

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never see because you're dead. And by

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the way, death isn't a good strategy

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because you can only use it once. Right,

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Zeke? Zeke's behind the camera. He's

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like, "Yeah, yeah, death isn't a good

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strategy." No, it's not. But with life

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insurance, the death benefit passes

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tax-free and pro probate free to the

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listed beneficiaries of the policies.

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So, you see these things come on TV and

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they're like, you know, we will buy your

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life insurance policy. Or you might say,

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um, I I really don't see why I have a

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life insurance policy anymore, or I

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don't want to make these payments, the

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premium payments annually anymore. How

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does that work? So, what the companies

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are doing is they're buying the death

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benefit. They're buying they're buying

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the rights to the death benefit and

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they're paying you a fraction of a cash

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value, but they're running your life

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expectancy table. So, in essence,

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they're waiting on you to die. They're

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buying the ownership of that policy and

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the rights to that tax-free lump sum at

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your death, but they're going to look at

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your life expectancy and then give you

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an amount that's typically fair. A lot

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of the the ones out there are very very

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fair. Um, and and then you get the cash

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and then they're waiting on you to die.

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You're saying, "Well, that's morbid."

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Yeah, that's why I call them death

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bonds.

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really this is a I mean if if you had an

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extra half a billion dollars laying

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around it's a great business to go into

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because it's all about life expectancy.

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Okay. And so a lot of times um people

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have a terminal illness and they need

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money or they just for whatever reason

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they need money from their life

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insurance policy. They don't need that

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anymore. They can get that upfront

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payment in cash and then that company's

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going to get the death benefit on the

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back end taxree.

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All right. So, I want to explain to you

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how how that works. And if you have a

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life insurance policy out there that

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you're not using, um you can do that. If

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you have a cash value inside of that

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policy, you can transfer the cash value

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to an annuity um without any tax

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consequences. That's called a 1035

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exchange. 1035 is the section of the IRS

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code that says you can transfer annuity

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to annuity or life insurance cash value

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to annuity

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um without any tax consequences. You can

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do that. Okay. If you say, "Well, I'm

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going to hold on to that that cash value

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because the guy that sold it to me told

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me that's taxfree income." No, no, no.

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That's a loan. That's not taxfree

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income. All loans are tax-free. Hello.

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So, don't don't fall under that trap.

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But there's also companies out there

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that will buy your annuity lifetime

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income stream as well. Um, and there's

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they'll either buy it if you bought it

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and a lot of times they're called

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structured settlements that they'll

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they'll buy as well. And there's there's

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what's called secondary market annuities

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that used to be a pretty vibrant market,

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but it's really kind of gone downhill a

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little bit recently due to some, you

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know, obviously it's a little bit

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unregulated. Anytime it's unregulated,

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there's some issues that's happened. A

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good friend of mine used to be really

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big in that and now he's not. That's all

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I need to know, which means that it's

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not for him. He's got a pretty high

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moral compass and if he's if he's

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checked out then then you know I trust

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his moral compass. But but a lot of

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those people that have been a really bad

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say truck accidents or you know

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something like that and the judge hits

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the gavl and says you know you're going

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to get a lifetime income stream from

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this double A+ company. A lot of times

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the people that get that lifetime income

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stream will come back to the judge and

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say I want to sell a portion of that.

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That's a secondary marketed annuity and

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you're buying that portion. Now, what's

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interesting about that is in the past

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few years, there's been some lawsuits

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from family members that weren't

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involved in agreeing to selling the

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portion of those payments that are now

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suing for those payments back.

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I guess my whole thing is is be careful.

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You know, as I always say, you know, you

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can't thread the needle. You can't beat

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anybody. There's no arbitrage in

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annuities. I mean, these are contracts.

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Um, but I did want to explain these all

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these ads that you're seeing. I'm not

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going to mention the names. I know the

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owners. I'm just not going to give them

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that free publicity. But you've seen the

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ads where they say, you know, if you

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have a life insurance policy and you and

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you don't need it anymore, will buy it

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from you. That's what they're doing.

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They'll they'll look they'll look at

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your life expectancy. Um, a lot of them

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will look at your health records and

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then they'll make they'll make an offer.

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It's an active market. If you're if

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you're in the market for that, you

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should probably have a couple of these

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companies bid on your business and then

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you're going to get that um you're going

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to get a lump sum for that life

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insurance that you no longer own. They

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own the rights to that death benefit. So

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those are called life insurance death

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bonds. But if you have an immediate

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annuity and or or annuity and payment,

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there are some companies that will go in

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there and buy that from you and buy that

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lifetime income stream. um looking at

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your life expectancy doesn't happen as

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much in the annuity industry as it does

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in the life insurance industry. And the

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reason that I think that's true is

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remember the death benefits from life

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insurance pass taxfree and probate fe

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free. And you got to be saying well wait

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a minute Stan you said that life

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insurance companies issue annuities. I

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did are the annuity death benefits

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taxree. No. So life insurance death

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benefits death benefits taxree. Life

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insurance companies issuing annuities

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those death benefits are not taxfree.

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I mean those are the rules. That's how

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the that's how the game is played. My

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opinion, you should look at annuities

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for four things because that's what I

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do. That acronym is pill. P stands for

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principal protection. I stands for

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income for life. L stands for leg

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legacy. And the other L stands for

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long-term care. And you ask two

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questions to to even see if you need an

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annuity. Number one, what do you want

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the money to contractually do? And

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number two, when do you want those

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contractual guarantees to start? From

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those two answers, we can tell you if

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you need an annuity, and we'll tell you

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if you don't, or and if so, if we think

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you you might, we'll show you the one

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that will provide the highest

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contractual guarantee for your situation

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based on those two answers. Everybody in

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my Las Vegas office is licensed in all

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50 states, but none of them are on

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commission, okay? Their bonus is based

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on client satisfaction. We're not

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hammers looking for nails.

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I mean, we we're just doing it different

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out here. As you can tell, I'm a little

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different. We do it different out here.

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But I wanted to cover the life insurance

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death bonds. I call them death bonds.

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You know, the people in the business

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that own these companies go, "Don't call

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them that. Don't I mean, I didn't come

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up with that. I I remember reading an

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article. I forgot whether it's in um in

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Barons or it was in Wall Street Journals

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a while back and they called them they

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said, you know, the emergence of death

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bonds." And I'm like, "That's exactly

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what they are. They're death bonds. The

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the people that buy your death benefit,

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they're waiting for you to die." Now,

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there's been, as you can imagine, I just

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I just remember this, Zeke, there was

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there were some people that this did

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some bad things and they would buy you

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love this buy life insurance policies on

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homeless people

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and then there was questionable deaths

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as they would say until they were caught

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and they're in prison. But, you know, uh

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there's always people trying to push the

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system. But, uh just remember, you know,

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annuities and life insurance, life

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insurance companies issue annuities.

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These are assets and there there is a

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semi-active

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secondary market for some not all

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annuities out there but some not all

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life insurance policies but more life

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insurance than annuities. All right,

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education for the day. Shooting it

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straight with Stan. My name is Stan the

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Annuity