Donor pitches life insurance to raise FAU millions

Philanthropist and self-made insurance tycoon Barry Kaye wants Florida Atlantic University to use one of his new life insurance plans to make the school $100 million richer.

Kaye, a newly appointed member of the FAU Foundation, is making a pitch to President Frank Brogan after boldly announcing at a recent foundation meeting that he would be personally responsible for raising the $100 million if FAU accepted a program he was proposing.

Kaye wouldn’t give details of his proposal but said it could include something similar to the recent Oklahoma State University purchase of $10 million life insurance policies on 28 athletics boosters that will bring in $280 million upon their deaths.

“I’ve made a proposal to FAU and until there are decisions on it, it would be inappropriate to give details,” Kaye said. “It would be a method of raising money that I developed for them.”

A money-making tool Kaye uses is the booming new life settlement industry, where investors buy the policies of senior citizens for an amount less than the death settlement and then cash in when the person dies. Brokers often act as intermediaries and receive commissions for selling the policies.

The practice is an offshoot of viaticals, which became popular during the early days of the AIDS epidemic when terminally ill people began selling their life insurance policies to investors so they could pay for medication, treatment or a final vacation.

As better AIDS drugs developed and people began living longer, the viatical industry, which was regulated loosely and subject to fraud, diminished.

Now, life settlements are becoming so popular that one expert called them the insurance industry’s version of the stock market. Another, however, said they are “morally hazardous.”

“I’ve got universities and charities all over the country working with me now,” Kaye said during an April symposium at FAU on life settlements, a specialty of his family-run business. “If we can use your life for charity, what’s the downside of that?”

In June 2005, FAU created the Barry Kaye Institute of Insurance Philanthropy to specialize in using insurance as a financial planning and philanthropy tool after Kaye donated $5 million to the Boca Raton school’s business college.

Kaye, who has taken FAU under his wing with more than $20 million in personal pledges and donations, said he believes his proposal could be approved within three to four months. He told his audience last month that Brogan had been talking about the plan for three days and about “changing how things are done.”

FAU spokesman Kristine McGrath said Brogan has had limited conversations on the deal and wants more information before making a decision.
Brogan “is not against using it. He just needs to find out more about how it works,” McGrath said.

Messages left for several executive board members of the FAU Foundation were not returned.

Doug Head, director of the Orlando-based Life Insurance Settlement Association, said South Florida is a gold mine for the new insurance investment market because of its large population of wealthy senior citizens who no longer need a life insurance policy or who are willing to have one purchased for them with the intent it will be sold for profit.
“There is huge potential in this,” Head said. “I mean huge. Way, way, way beyond what FAU would even be thinking about.”
Head spoke at one of Kaye’s seminars at FAU this year and bought one of Kaye’s books about using life insurance as an investment or charitable source for his elderly father.
“Kaye works right on the edge of what a lot of people think is acceptable, but I think he’s totally operating within the law,” Head said. “People used to think it was unacceptable for old ladies to wear shorts and play tennis, too.”

After the Oklahoma State University purchase, Head said schools all over the country began looking into ways to use life insurance for investment.

In the past, donors have named schools as beneficiaries of their life insurance policies. But it’s something new, Head said, for universities to buy the policies and pay the premiums until the donors die. Only elderly donors are sought for the policies so premiums will not have to be paid for many years.

In fact, most life settlement plans are available only to people at least age 65, depending on their health. The sicker the person, the more a policy would be worth to an investor.

“The excitement about Oklahoma State got a lot of other companies and universities interested,” Head said. “Oklahoma State said their phones were ringing off the hook.”
Some insurance regulators are concerned about the new investment uses for life insurance, especially life settlements.

Because the practice increases the number of death settlements insurers pay out, regulators believe premiums will go up for everyone. Insurers base their rates on a certain amount of people letting their policies lapse or taking a cash buyout from the insurer that is substantially less than a death settlement.

“Regulators have become uncomfortable about what we call the moral hazard of creating life insurance for sale,” said Julie McPeak, an executive committee member of the National Association of Insurance Commissioners.

Kaye acknowledged insurance companies don’t like what he does.

“I’m sure there will be lawsuits,” Kaye said during his symposium.

Still, some FAU trustees see the potential of investing in life insurance.

“It’s something that’s new and innovative and people are doing it and making money,” trustee Armand Grossman said. “I suppose it’s a bandwagon that many universities are going to grasp onto.”