Matt Levine’s Money Stuff: How Could the Death Bets Make Money?

Who is selling all this underpriced life insurance?

We talked on Tuesday about a weird trade. The trade is: A person, usually an older person — call her Alice — takes out a $5 million life insurance policy, naming an investor — call him Bob — as the beneficiary. Bob pays Alice a fee for doing this — say 3% of the face value of the policy — and also pays the premiums on the policy. Eventually Alice dies, the insurance pays out, and Bob gets the money. If the death benefit is higher than the premiums that Bob has paid over time — for instance, because ...