The Six-Feet Over/Under

Firms active in the life-settlements business include Abacus, Coventry First, Life Partners(LPHI Quote) and Maple Life Financial. Typically, the policies are sold by older people who would rather receive upfront money while they're still living than leave the policies' "death benefit" to their heirs. The buyers, known as "life settlement providers," often get financing from hedge funds, Wall Street investment banks and European investors.

Some behind-the-scenes financial backers to life-settlement providers are American International Group(AIG Quote), Deutsche Bank(DB Quote), Merrill Lynch(MER Quote) and London-based investment firm Fortress Group. The list of hedge funds jumping into life settlements, sources say, includes Dallas-based HBK; London's Pentagon Capital Management; London's Cheyne Capital; New York's Reservoir Capital; and New York's DB Zwirn.

In many instances, purchased policies are resold to other hedge funds and speculators seeking high-yielding investments. Abacus' Seitel, for instance, has ties to a European firm called Indemnity First, which works with overseas investors interested in betting on life settlements. Seitel is a director of the Spanish-based firm led by Mike Abraham, a veteran life-settlements financier.

But life settlements are a gamble. Relying on actuarial tables and physician reports, the buyers of such policies ultimately are wagering that the insured -- the person whose name is on the policy -- will die before the premiums eat up too much of the final payout.

Officials with Abacus and Advanced say there's nothing improper in their relationship, and they have taken steps to disclose their ties to would-be sellers.

An Advanced official points out that the application form signed by all sellers says the broker and its principals "are affiliated with a provider/purchasing company which could potentially acquire your insurance policy if it provides the best offer.'' If Advanced recommends Abacus as the buyer, the contract includes a clause noting that the buyer and its principals "are affiliated with Advanced Settlements.''