Making money off someone's death

28thApril'25

There is a security called viatical (Latin: viaticum, “Purse given to a traveller in preparation for a journey”), mainly present in the US. It started as an instrument for AIDS patients to sell their life insurance to investors, who, in exchange for a claim on the insurance, would provide lump sum amount to the patient while they were still alive.

For example, if I have insurance worth $500k and know that I am about to die soon, I can sell a claim to my insurance to party X, who will pay me a smaller share of the face value as a lump sum amount today, somewhere between ~$150k-$200k. This way, I turn an illiquid asset into liquid and can have some money for myself while still alive, and investors profit once I’m dead.

These were quite popular in the 1990s, and a handful of viatical companies were popping up, especially because of the AIDS crisis. As the crisis became more manageable and treatments advanced, people started living longer than expected, meaning investors lost money!

Gradually, the focus of these settlements shifted towards ordinary elderly people looking to sell their unwanted settlements, which makes a lot of sense if they don’t have a next of kin. In 2023, about 3,400 such policies (including viatical) were sold, with a total face value of $5 billion. This is a drop in the multi-trillion-dollar U.S. life insurance industry. According to a report, in the U.S., about $200 bn of life insurance lapses or is surrendered annually, which could have been sold in the secondary market.

This security is not recognized in India as it stands, but I am contemplating whether there should be a secondary market for it. Currently, the only option a policyholder has is to surrender their insurance to the insurer at a price predetermined by the insurer themselves, which, obviously, is usually a minuscule amount of the face value.

It’s crazy what innovations the free market is capable of, would never imagine banking on someone’s death could ever become a win-win situation!