Life insurance policies may not be sold because it is too risky
LONDON –Firms have to be banned from selling traded life insurance policies, or “death bonds,” to U.K. retail customers after the Financial Services Authority has decided they have much risk. On Monday, the FSA said that guidance have told companies to stop marketing the investments before a formal ban. It said that the risks of these are “toxic products,” which bundle U.S. life insurance policies and create payouts as policy holders die, including the policies are not paying out under hoped timelines or otherwise resulting in investor losses if the managing firm must sell them quickly to collect funds.
By depending on new investors’ money for paying yields to existing investors, the FSA said that some of the products that are often sold and managed through offshore channels are also having characteristics of Ponzi schemes. The FSA first lifted the alarm on these products in February 2010 and earlier this year argued that perhaps they are not suitable for most retail investors. U.K. customers had lost hundreds of millions of pounds when one provider of the life-insurance backed bonds, Keydata Investment Services Ltd., had already collapsed in 2009.
FSA Managing Director Margaret Cole said the failure of these products in the past had caused to significant consumer detriment and we are afraid new investors will suffer unless we do the necessary steps now for preventing their sale and distribution. Finally, we ban [traded life insurance policies] from being marketed to U.K. retail investors, and we intend for consulting on this next year and helping erase the risks they pose.
