Wall Street played a huge role in creating the economic mess we are in through the securitization of sub prime mortgages and through other ill advised financial products. Now, the NY Times reports that the banks have turned their attention to buying up life insurance settlements and then applying some of the same principles to them that were used on the sub prime mortgages.
Here’s the basic gist. Life insurance policies often have a cash surrender value if you want to cancel the policy. But normally this is not a significant amount of money. So what does an elderly or very sick person do if they have a large life insurance policy but need money now? They “sell” their policy to someone who pays money to then keep the policy in force until the person dies.
The idea is that you pay less for the policy and the premiums than you will receive when the elderly or sick person dies.