Most articles advocating in favor of life settlements1 do so with a hat tip toward compassion and fairness, but generally focus primarily on the economic benefits that a life settlement offers policy owners. Conversely, detractors of life settlements transactions frequently point to abuses, real and perceived, suffered by the sick and/or older individuals who are the primary sellers of life insurance policies. While there are reasonable bases for both positions, life settlements transactions present a person who no longer wants or needs their life insurance the opportunity to monetize an otherwise illiquid asset. While life settlements transactions undeniably benefit policy sellers, rarely is the question asked – are life settlement transactions ethically and morally justified? Put another way, are the benefits of these transactions outweighed by any potential moral injury done to society by permitting such transactions?
In the context of analyzing whether life settlements are ethical and moral, it must be noted that there is no dispute as to whether such transactions are legal2. In the last three decades, 45 of the 50 United States3, as well as Puerto Rico and the District of Columbia, have passed legislation regulating life settlements transactions and enacting protections for the sellers of policies and the lives insured thereunder. Life settlements laws address the mechanics of these transactions, requiring, among other things, that policy sellers and insureds receive certain disclosures about the consequences of selling a policy and putting in place safeguards to ensure policy sellers receive the proceeds from the sale in a timely manner. It is, however, axiomatic that just because something is legal, it is not necessarily moral or ethical.
The arguments that life settlements transactions are neither moral nor ethical can be grouped into two general categories: First, the fact that anyone, and particularly an investor, could profit from the death of another human being increases the probability of foul play befalling an insured and is inherently immoral and unethical;4 and, second, that life settlements transactions erode fundamental principles of mutual dignity and respect because at the core of these transactions is the commoditization of human life, thereby undercutting the natural respect and dignity of persons5.
While these arguments are worth considering, the first is quickly disposed of as unsupported by any empirical data. The second assertion places undue emphasis on what its proponents perceive as an erosion of the common bonds that tie a society together and gives insufficient weight to a more fundamental aspect of a moral and ethical society: autonomy. Before proceeding further, it is useful to set out an analytical framework for how the concept of autonomy is relevant to the question of whether life settlements are ethical and moral transactions. Questions of ethics and morality are by their very nature relative to the moral schema to which a society subscribes. The renowned British philosopher, A.N. Whitehead, reportedly once commented on the writings of Plato, that: “The safest general characterization of the European philosophical tradition is that it consists of a series of footnotes to Plato,” or, more colloquially, “all Western philosophy is but a footnote to Plato.” It is obviously impossible to know how Plato, or his most renowned student, Aristotle, would view life settlements transactions (the first life insurance policy was not issued until approximately two millennia after their births). And, while it might not occur to most to use their philosophies as a lens to view life settlements transactions, given the ubiquity and pervasive influence of their teachings in in Western philosophy, using their works as the departure point for this analysis is relevant and useful.
A final layer of cultural relevance to this discussion is the fact that, due to the comparatively unique structure of life insurance products sold in the United States and the American commitment to buying and selling anything, the life settlements market in its current form exists almost exclusively in the U.S.6 That is to say, the analysis below is applicable to current American society and life settlements market, and might not be appropriate or applicable for every cultural framework.
Autonomy, in Western ethics and political philosophy, can generally be characterized as the state or condition of self-governance, or leading one’s life according to reasons, values, or desires that are authentically one’s own. The term is derived from the ancient Greek words, autos, meaning “self,” and nomos, meaning “rule”. The roots of autonomy as self-determination can be found in Plato’s assertion that the most essentially human part of the soul is the rational part, that which exercises autonomy by deciding what is best for oneself in the context in which one lives. Plato associated the ideal for humanity with self-sufficiency and a lack of dependency on others. For Aristotle, self-sufficiency is an essential ingredient of happiness, and involves a lack of dependence upon external conditions for happiness. The best human will be one who is ruled by reason and is not dependent upon others for his or her happiness.
One criticism that those who believe life settlements transactions are immoral and unethical might proffer to the concept of autonomy underpinning a moral and ethical justification of life settlements, is that the concept of autonomy, taken to its extreme, could lead to a state of solipsism7, in which the individual good is the only good unmoored from the community. Put another way, one could believe that a life settlement is the right choice for one’s self, but at the same time be unaware of or affirmatively uncaring if that choice visits moral violence on the larger community by commoditizing and cheapening human life.
That view is, however, divorced from the reality of the complicated and interwoven cloth of the communities in which we exist. While each individual is little more than a single thread, it is the loom of community that weaves us together as a whole. Aristotle recognized that human beings are not and cannot be perfectly self-sufficient, and are hence incapable of fully developing self-understanding and exercising autonomy at will. Human beings need other human beings in order to establish cooperative roles in larger communities in order for society to function properly. Essentially, autonomy is bound with the self-sufficiency and well-being of the community.
How, then, do life settlements transactions enhance individual autonomy and, commensurately, the beneficial functioning of the community? The freedom to sell a life insurance policy allows policyholders to determine the best use of their own assets, particularly when they are making decisions about how they wish to spend the final years of their life. It acknowledges their right to allocate resources according to their individual needs and priorities. This autonomy not only respects the dignity of individuals but also recognizes their capacity to make rational decisions regarding their well-being, financial and otherwise. Looked at from this perspective, the argument that the existence of life settlements transactions cheapens and commoditizes human life is turned squarely on its head. In fact, it is recognizing the autonomy of individuals to make decisions in their own best interests that ultimately strengthens, rather than frays, the threads of community that bind us together.
James Maxson is a Partner at EM3 Law
1The term “life settlement” is used herein to mean both traditional viatical settlements (where the insured has a terminal or chronic illness resulting in a life expectancy of 24 months or less) and “senior settlements” (the insured is 65 years of age or older with health impairments but has a life expectancy of longer than 24 months).
2In Grigsby v. Russell, 222 U.S. 149, 156 (1911), the U.S. Supreme Court affirmed that a life insurance policy is an asset that may be sold by its owner, holding that “as far as reasonable safety permits, it is desirable to give life policies the ordinary characteristics of property.”
3In the five states with no legislation, life settlement transactions are legal but unregulated.
4Lurid and apocryphal tales aside, it has been over a century since the U.S. Supreme Court decided the Grigsby case, and there has been no documented case or prosecution associated with an investor being involved in the death of an insured life purchased in a life settlements transaction.
5A summary of these arguments can be found in What Is So Morbid about Viaticals? An Examination of the Ethics of Economic Ideas and Economic, Business and Professional Ethics Journal 31:3-4 (2012) pp. 453-473, Glac, Katherina, Skirry, Jason D., Vang, David
6For instance, while not specifically enacted to prohibit life settlements most Canadian provinces have laws on their books that prohibit “trafficking” in life insurance policies, which effectively outlaws life settlements transactions. See, Study Paper on Viatical Settlements, Canadian Centre of Elder Law Studies, CCEL Study Paper No. 1, BCLI Report No. 43, May 2006.
7Generally, “solipsism” can be defined as a state in which someone is so focused on their own wants and needs that they don’t think about other people at all – it is a form of extreme selfishness in which the wants, needs or even existence of such concepts related to other humans are, at best, abstract.
Any views expressed in this article are those of the author(s) and do not necessarily reflect the views of Life Risk News or its publisher, the European Life Settlement Association