Placing a bet on a stranger's death may sound morbid, but the life settlement industry promises high rewards to investors.
Here's how it works:
But here's where things get hairy. The government alleges that when marketing the policy, Life Partners only tells prospective investors about its own -- much lower -- life expectancy. That allows them to raise the price of buying in to the policy, and pocket the difference when investors keep paying premiums well after the projected life expectancy.
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Depending on how long the insureds live, investors can end up paying more than the policy is actually worth.
According to the SEC, 83 percent of the insureds who died in 2010 had outlived Life Partners' life expectancy estimates.
But how exactly is the value of a person's death determined? Look through an example investment summary from Life Partners at http://bit.ly/WTa25N.