Death Bond

Ever see TV commercials advertising the notion, anyway, that they want to buy your life insurance policy? "We'll pay today for your death tomorrow"...or something like that. Anyone with an elderly relative knows the pitch, and some elderly folks have sallied forth and sold those policies. (Essentially, they are just assigning the notional money that their kids would have received upon their death...to the buyer.)

If you ever wondered what happened to those life insurance policies after they were sold, well, they are bundled together, like collateralized mortgages, and then securitized into the legal form of bonds that are then sold to investors. Lotta steps. Lotta paperwork.

These life insurance bonds are referred to as Death Bonds, since their value is in the payoff from the insurance companies when the underlying parties from the underwriting who sold the policies eventually...drop dead.

The roots of Death Bonds and the name came about in the late 1980s, when patients diagnosed with AIDS sold their insurance policies, referred to as viaticals, for the cash value at the time. The buyers maintained the policies for the payout value when the sellers eventually died. A bit ghoulish in concept, but let it not be said that the finance world isn’t creative.