> Are they just betting on the insurance companies mispricing their insurance products? Sort of. First, the investors are betting that the information they hav

> Are they just betting on the insurance companies mispricing their insurance products? Sort of. First, the investors are betting that the information they have now (when the insured wants to sell) is better than what the insurance company had then (when the insured purchased the policy). Second, life insurance policies have a “cash surrender” value, basically an amount of money that the insurance company will pay to the insured to give up the policy. These days those cash surrender values are extremely low, as the insurance companies rely on the difference to boost profits; they can do this because many policyholders don’t know there are alternatives to surrendering the policy if they can’t make the payments. What’s attractive about this from an investor’s perspective is not outsized returns, but returns that are uncorrelated with the market. I was pretty grossed out when I first heard of this kind of investment but then learned that it first became popular during the AIDS epidemic. Selling their life insurance policies was a way for the terminally ill to benefit from an asset that was not going to have any value to them after death (if they had no family to benefit from the payout). Without investors providing a market for these policies, they’d have to settle for the cash surrender value.