Nothing like a “betting against marriages” post to liven up a Wednesday morning… Seriously though, I was poking around over at Daily Finance yesterday and noticed an article that I could not resist: could the next big investment craze be hedging marriages?
Essentially, there’s a website that will reimburse you for the cost of a wedding gift (up to $500) if a marriage fails within 3 years (divorce only – no annulments for some reason).
The cost? 8% of the cost of the gift (you must also upload a copy of the receipt – only works with gifts – not cash).
Simple enough, right? Well here’s the problem (or one of the problems), as Daily Finance points out: It’s a flawed model.
The insurance premium of 8% is small enough to entice, but large enough to make it a relatively tough decision. And apparently the whole “credit default swap” secondary market was set up on a similar model. That concept was set up to protect lenders from losing all of their money if a loan failed. But “investors” figured out a way to take out the insurance without lending money – essentially buying insurance policies on loans they didn’t hold. So their cash outlay was significantly lower than if they had to lend money and then buy insurance on top of that.
There’s a similar industry with life insurance, too, with “investors” buying life insurance policies from people they don’t know (hoping they die soon, essentially). They call these “life settlements.” Basically people will pay someone more than the cash surrender value for their policy but less than the insurance amount and hope the person dies soon enough to yield a good return on the money… yeah, kind of creepy, right?
So Daily Finance suggests there’s going to be a secondary market for wedding receipts and that and that “investors” will target party-goers and try and buy their receipts (or copies of receipts, I guess) for a few bucks and hope the marriage ends within three years to pocket the price of the gift with only an 8% (plus cost of receipt) investment.
Pretty crazy, right? Well it’s actually not a terrible idea (assuming you don’t have a problem routing for destruction and heartache…). But aren’t there more ways for abuse?
For example, a fraudster could do things like buying multiple gifts, returning all but one (the “real” gift) and buying insurance so that they could get much more than the price of the gift if the marriage fails. Or the same fraudster could set up a wedding just so he and a few of his friends could score a 92% discount on some really cool stuff, agreeing to divorce in advance.
In an extreme case, “investors” could try and target the marriage, hoping it will fail (like send in a beautiful woman to tempt the guy and have a photographer ready…). Then again, it’s unlikely that the finances of one wedding would justify “messing with the system.” Although 200 people times $500 max gift is a ton of cash ($100,000) that’s a real extreme – 100 people at 100 bucks is only $10,000.
But what do you think? Too far? Too creepy? What else could go wrong?
Ever attend a wedding you didn’t think would last 3 years (other than your own!)? Would you pay 8% for a policy like this?
And what would you do if you found out some of your guests bought a policy in case your marriage failed?
I don’t know. I think I’ll stick with index funds and ETFs. And here’s predicting the company either loses way too much money and folds or it changes its model in response to “shenanigans” (like sending money only to the credit card used to purchase the gift, verifying the number from the receipt and literally sending a payment to the card, or something like that).
Until next time, put your credit card down and slowly step away from the mall!
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