This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Seniors Swindled by 'Spin Life' Insurance

Sales agents collected fat commissions by convincing seniors there was no risk. Household names in financial services were raising money to buy these policies, betting they would pay premiums for a few years and then collect on death. Among them were LaSalle Bank (now part of Bank of America (BAC - Get Report)), Credit Suisse Group (CS - Get Report) and funds managed by Berkshire Hathaway (BRK.A - Get Report) and Goldman Sachs (GS - Get Report).

Death bet gone wrong: Then came the credit crunch. Demand for the policies dropped as investors struggled to borrow. When the two-year premium period expired, the insured expected brokers to sell the policies, allowing them to collect their bonuses. But there was no money to complete deals.

Suddenly, seniors faced premiums on insurance they didn't need and couldn't afford. It wasn't unusual for a senior to take out a $5 million policy, citing estate tax purposes. The premium on that policy could be $200,000 a year.

Sure, they could stop paying premiums and drop the policies, but most had signed documents agreeing to repay at least 25% of the first two years of premiums, plus interest. At the end of two years, the senior would owe $100,000 plus interest, adding another $6,000 to the tab.

Forgiven loans taxed: If the senior manages to pay off the guaranteed amount, plus interest, the lender will "forgive" the balance and additional interest. However, the policy holders will owe taxes on the forgiven debt.

If $300,000 plus $18,000 in interest was forgiven, a senior in the 35% tax bracket would owe an additional $100,000 in taxes on this phantom income.
2 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
BAC $12.12 -0.61%
BRK.A $193,820.00 0.62%
CS $13.72 1.90%
GS $149.71 0.98%
AAPL $95.14 0.15%


Chart of I:DJI
DOW 16,025.61 +11.23 0.07%
S&P 500 1,867.52 +15.31 0.83%
NASDAQ 4,334.5510 +65.7880 1.54%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs