Journal of Business Ethics

, Volume 96, Issue 4, pp 513–534 | Cite as

The Ethics of Life Insurance Settlements: Investing in the Lives of Unrelated Individuals

  • Hugo NurnbergEmail author
  • Douglas P. Lackey


Life insurance settlements, or life settlements, are life insurance policies owned by investor-beneficiaries on the lives of unrelated individuals. With life settlements, investors make substantial payments to the insured individuals upon purchasing such policies, pay any remaining premiums, and collect the death benefits upon the demise of the insured individuals. Transactions involving life settlements seem poised to become a major source of profits for investment banks, comparable in dollar amount to subprime mortgages. With life settlements, the insured individuals suffer no immediate harm, and the sale of a policy an individual owns is permissible under current law. Nevertheless, moral questions can be posed about the social values expressed by these practices, the effect of these practices on the virtue of charity, and the overall loss of social utility that will result from life settlements. We consider life settlements from utilitarian and libertarian perspectives, and then consider the effects of life settlements on social values and on individual character. On balance, we favor legislative changes in insurance and tax laws to discourage life settlements, and argue that certain forms of life settlements should be banned outright.


insurance ethics investor-initiated life insurance (IILI) investor-owned life insurance (IOLI) life insurance settlements life settlements speculator- initiated life insurance (SOLI) spin-life insurance stranger-originated life insurance (STOLI) value of life 


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The authors gratefully acknowledge the useful comments of Michael Borsuk (retired partner, PricewaterhouseCoopers), Julius Cherny (Baruch College), and Sandeef Streekumar (Baruch College). The authors also gratefully acknowledge the considerable help of librarian Rita Ormsby (Baruch College) in identifying and accessing many of the source documents.


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Copyright information

© Springer Science+Business Media B.V. 2010

Authors and Affiliations

  1. 1.Baruch CollegeCity University of New YorkNew YorkU.S.A.

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