Dear Mr. Berko:

I’m 81 years old and in superb health. My son wants me to purchase an $8 million life insurance policy, because he wants to sell the policy to investors so he, his family and I get the money to enjoy the good life. I’ve never heard of selling a policy, but he’s an attorney and says it’s common. My wife died in 2002, and I live with my daughter.

My son lost a lot of money in the real estate business in Florida, and he says the proceeds would also help him get back on his feet. He says I don’t have to pay any premiums (which are $367,000 a year), because he knows someone who will make the annual payments. My daughter thinks this is terrible and illegal. But my son would get $1.25 million, and I would get $500,000, which I would give to my daughter. She told me to write you and ask if this is legal and honest.

F.R., Boca Raton, Fla.

Dear F.R.:

Yes, it’s legal, but it rubs me the wrong way, sort of like tweed underwear. Only a lawyer would find a way to offend and circumvent the Fifth Commandment (Honor thy father and thy mother) without committing a felony.

My daughter, who is also a lawyer, refers to the wholesale sale of life insurance policies as a “contract to sell your soul to the devil.” Perhaps Shakespeare was right in Henry VI, Part 2, when Dick the Butcher exclaims, “The first thing we do, let’s kill all the lawyers.”

Alas, the legal profession has now found another way to squeeze blood from an onion, or as your son might say, “Dad, this is a marvelous way to use your body as an asset!” Today the sale of insurable interests in life insurance policies has become an impressive cottage industry.

I won’t tell you not to do it. That’s a personal decision, and it’s a difficult decision if you want to keep peace between your daughter and son. I can tell you that it’s as legal as exchanging four quarters for a dollar bill. And I can tell you that you have zero obligations to make the annual premium payments of $367,000 a year. Those premium payments are made by the investor, who will, as soon as the policy is issued, give you $1.75 million for the insurable interest and start waiting for you to turn toes up. The sooner you get measured for a coffin, the happier he will be. But I must admit that in most instances, this business is anathema to me.

These deals are called “spin-life” policies and about $12 billion of them changed hands last year. In fact, this business is so profitable (especially in Florida) that groups of competing speculators/investors sponsor free cruises for aging seniors who will purchase life insurance policies while cruising the beautiful bottle-green waters off the Bahamas and sipping champagne. Meanwhile insurance companies are on the hook for $110 billion in spin-life policies over the next 10 years.

Insurance companies depend on policyholders to cancel their policies; in fact, insurers actually rely on policy cancellations. Policyholders cancel their coverage for various reasons: The insured becomes fully vested in his or her pension, retirement in-come kicks in, the insured is financially unable to continue payments, children become self-dependent, etc. Without these cancellations, payouts increase, the insurance industry becomes less profitable and premiums will burgeon.

In 2006, almost 20 million policyholders canceled their protection, reducing the insurance industry’s financial exposure by $1.3 trillion. In 2006, the industry paid death benefits on only 2.3 million policies. But if the surge of spin-life policies continues, insurance companies may be forced to raise premiums on their policies for seniors.