The Six-Feet Over/Under

Spitzer's office has declined to discuss the investigation. Holtz says National Financial, led by CEO Jessica Bibliowicz, is cooperating with the investigation.

A source says Spitzer's office is aware of the relationship between Advanced and Abacus. Still, it's not clear if the New York prosecutor is looking into the relationship.

One issue Spitzer's office is believed to be examining is something called "premium financing,'' in which investors provide financing to an uninsured person so he can buy a policy. Some insurance industry executives say such financing is improper if a person buys life insurance solely for the purpose of selling the benefit to a third-party buyer.

Beyond the taint of the current Spitzer investigation, the life-settlements business continues to suffer from comparisons to the much-maligned viaticals industry, which specializes in buying life insurance policies from terminally ill people at discounted prices. Viaticals got a bad name in the 1990s when a number of firms engaged in unscrupulous tactics and were accused of taking advantage of the infirm, especially people with AIDS.

To distinguish themselves from the viaticals crowd, life-settlement buyers mainly target rich people who are over 65 years old with insurance policies that carry high premiums. Or they pursue corporations looking to unload policies that were taken out on former executives. The buyers pay an upfront lump sum for these potentially lucrative policies and simply wait for the former policyholder to die.

For the seller, the amount of money received upfront is usually far less than his heirs would receive at the time of his death. But the amount is also far more than he could reap by simply selling the policy back to the underwriter.

Last year, for instance, X-Rite(XRIT Quote), a commercial-graphics supply and manufacturing company, sold three unwanted life insurance policies it owned on its founders with a combined death benefit of $30 million -- for $6.5 million. X-Rite had taken out the insurance policies in the 1990s.