Drudge is linking to the smokinggun.com – there is a lawsuit by Larry King regarding some insurance stuff. It sounds complicated and is. But what the media is missing from all this is the admission by Larry King that Larry King has a pretty serious illness.
It goes like this.
The lawsuit is about a typical "life settlement" scheme, basically a way to screw over the insurance companies. By the way, Larry’s lawsuit is the tip of this little insurance scheme iceberg, and yet again, the Wall Street sharpies have now endangered the life insurance market, just like they basically shafted the U.S. housing market.
Back to our story. See, when the insurance companies sell life insurance, one of the ways they make money is by the policy owners failing to pay premiums after a few years and the policy lapses. It is a known statistical occurrence that allows life insurance companies to sell policies on the cheap and drum up business.
As a rough example, if you were a man in your 70s, the life insurance companies will sell you $10,000,000 of life insurance for say something like $150,000-$200,000 a year, and let’s say you pay the premiums for 3 or 4 years – the insurance company gets half a million bucks and has yet to pay out a dime.
Now after a few years, you do not want the insurance – maybe you can’t afford it or maybe you just do not need it – and you let it lapse by not paying the premiums, the reason makes no difference. Well, you do not get your premiums back, the insurance company pockets it. Your bad and very good for the insurance company.
Well, say at the end of those 3 years, if you were in your late 70s and in bad health – that policy may have some value to someone who could maintain the policy – for instance, an investor might pay you a million bucks to buy that policy. After all, the investor just has to pay $150,000-$200,000 a year, and when you meet your maker, the investor gets $10,000,000 cash. That is not a bad return on investment. My numbers may be off, but this is called the "life settlement" market – basically it is a secondary market for "used" insurance policies, just like used cars, except the used policies are not the family chevy sold to gomez and sons, it is bought by very well heeled investors with a profit motive so strong that they are willing to play a little dead pool on old men. It costs the insurance company loads of money, because now they have to pay off this policy that would otherwise lapse.
So what the defendant in the King lawsuit did was get Larry King to sell the insurance he had and buy new insurance to enter into one of these buy and swap schemes, except that under the new scheme, they did not even have Larry hold the new insurance for 2-3 years (you are supposed to have this lead time because it is sort of against public policy to buy and resell insurance – and the insurance company can cancel the policy – to buy insurance if you intend to resell it – this is to avoid people using life insurance as a wagering item – which is exactly occurred here), The scheme here worked for reasons almost too complext to deal with, and because the insurance Larry purchased in 2004 is now three years old, not even the life insurance company can contest it even though the policy was used for wagering – state law gives an insurance company (i think) two or three years – at the most – to contest a policy – so that the policy on Larry’s life, absent an order of God or action of the legislature, will probably be collected.
Back to Larry, when Larry’s new big $10,000,000 policy changed hands (well, the beneficiary changed from Larry to a hedge fund) Larry King got a payoff of half a million bucks simply for his trouble of applying for life insurance.
Well, it worked. Larry made, by his own admission, a cool half mill on the insurance when the hedge fund became the beneficiary.
The only rub is that the $10,000,000 in insurance that benefited Larry’s estate is now owned by some hedge fund and when Larry dies, the $10,000,000 that his wife and kids would have gotten, will not be there.
Well, this rub is easily fixed and was probably explained to Larry, in that he could just get a new policy after the sale and his pocketing of a half mill. Basically, Larry was told he was making a risk free half mill, and he could just get new insurance to replace the old one.
So why is Larry unhappy? He made a half mill, and if as his lawsuit claims, he is pissed that he does not have insurance anymore, he could just take a medical and get a new policy.
Well, the lawsuit hints (and a little too obviously if you ask me, but I am not Marshall Grossman, king of the jewish litigators in Los Angeles) that there is a problem with Larry’s insurability – that maybe Larry cannot get insurance cause, well, his health sucks out loud.
I am not saying that Larry is having a conversation with Forest Lawn, but if I was Ryan Seacrest, I might be trading up to the CNN mike soon.