Ethics Framework Application

Ethics Framework Application Your paper should be typed, double-spaced and one to three pages long. You can submit your paper here through the assignments tab. Your assignment is as follows: Read the Summary posted here Death Takes a Policy. Provide a summary of what happened in" rel="nofollow">in Mr. Caramadre's situation. Second, put yourself in" rel="nofollow">in the place of Caramadre and discuss how you would act under similar circumstances. In your answer, you must apply a Framework for Ethical Decision Makin" rel="nofollow">ing . Although not required, you might want to listen to the audio posted here ("Loopholes- Death Takes a Policy") which provides an excellent narratibe of the case. To make the audio a little shorter, you can fast forward it to12:50. https://www.thisamericanlife.org/radio-archives/episode/473/loopholes?act=1 Death Takes a Policy That was the promise of an advertisement that appeared regularly in" rel="nofollow">in 2007 and 2008 in" rel="nofollow">in the Rhode Island Catholic, the official newspaper of the local diocese. The money, the ad said, was comin" rel="nofollow">ing from a "compassionate organization" that wanted to provide "fin" rel="nofollow">inancial assistance" for those near death. In reality, the ad was a recruitin" rel="nofollow">ing pitch for a plan by a promin" rel="nofollow">inent Rhode Island estate-plannin" rel="nofollow">ing lawyer, who believed he had discovered a way to use an in" rel="nofollow">investment product sold by in" rel="nofollow">insurance companies to make no-risk bets on the stock market. He recruited dozens of termin" rel="nofollow">inally ill people to, in" rel="nofollow">in effect, serve as paid fronts for purchases variable annuities. The lawyer and other in" rel="nofollow">investors put tens of millions of dollars in" rel="nofollow">into the policies, hopin" rel="nofollow">ing to reap a profit when the recruits died. Variable annuities are issued through in" rel="nofollow">insurance carriers, but function as retirement-savin" rel="nofollow">ings vehicles similar to 401(k) plans. An in" rel="nofollow">individual puts in" rel="nofollow">in money upfront and can add more over time, which gets in" rel="nofollow">invested in" rel="nofollow">in stock or bond funds and grows tax-deferred. At retirement, a holder can withdraw the money, convert the accumulated amount in" rel="nofollow">into a stream of lifetime annual payments—or leave it sittin" rel="nofollow">ing there for heirs. The twist that makes variable annuities attractive to professional in" rel="nofollow">investors is a money-back guarantee built in" rel="nofollow">into the plans, called a death benefit. In effect, in" rel="nofollow">insurers promise that a buyer's beneficiaries will get back at least the amount that was origin" rel="nofollow">inally in" rel="nofollow">invested, less withdrawals. So if a holder puts in" rel="nofollow">in $1 million, and the market subsequently tanks, the holder's heirs will still receive $1 million. Some in" rel="nofollow">insurers added enhancements to this basic death benefit, in" rel="nofollow">includin" rel="nofollow">ing a built-in" rel="nofollow">in in" rel="nofollow">interest rate that gradually in" rel="nofollow">increases the min" rel="nofollow">inimum money-back amount. Insurers figured they could recoup the cost of the guarantees over time, through the hefty fees usually associated with the products. In the case of ING's Golden Select Premium Plus variable annuity, the company promised to add 5 percent of the value of the contract. So, if you deposited a million dollars, the in" rel="nofollow">insurance company would add $50,000 on top of it. Why would ING give away free money? It never expected to pay the majority of the benefits it offered. The 5 percent was added to the death benefit, which was held in" rel="nofollow">in a separate account known as a shadow account. The in" rel="nofollow">insurance company only paid the shadow account if the policyholder died and the money — the million dollars — in" rel="nofollow">in the real account had shrunk to a lesser value. The companies' models of customer behavior, which were based on data collected before the 2008 fin" rel="nofollow">inancial collapse, predicted that the death benefit would rarely be paid. Somethin" rel="nofollow">ing would happen. Policymakers would take the money out for a big purchase, surrenderin" rel="nofollow">ing their account. If the policyholder annuitized — started takin" rel="nofollow">ing a stream of monthly payments — the shadow account disappeared. In any event, the risin" rel="nofollow">ing market made it likely that the account would outperform the promises. Perhaps the gaudiest of the benefits the companies never expected to pay was known as the "rachet." The idea was perfect for a steadily risin" rel="nofollow">ing market. Say you had $1 million in" rel="nofollow">in your account in" rel="nofollow">in 2007 and your in" rel="nofollow">investment did well, boostin" rel="nofollow">ing the value to $1.2 million. That amount would be set on a given date as your death benefit which you would be paid no matter what had happened to your in" rel="nofollow">investment. If stocks cratered, as they did in" rel="nofollow">in 2008, and your account fell to, say, $600,000? The in" rel="nofollow">insurance company would still owe you $1.2 million when you died. Joseph A. Caramadre, the Cranston, R.I., lawyer behin" rel="nofollow">ind the ads recruitin" rel="nofollow">ing the termin" rel="nofollow">inally ill, is an in" rel="nofollow">insurance expert with a high profile for his philanthropic activities. Last year, his family was honored by the Rhode Island United Way chapter with its highest annual award, and was lauded by the local Catholic Charity Fund for a $100,000 gift. Variable annuities have two significant differences from regular life in" rel="nofollow">insurance. Because the products are sold primarily as in" rel="nofollow">investments, in" rel="nofollow">insurers generally don't ask about the health of the "annuitant," the person whose death triggers the death benefit. And some don't seek in" rel="nofollow">information about the buyer's relationship to this annuitant. The best way to take advantage of the death benefit, Mr. Caramadre decided, was to take out an annuity tied to somebody with a short time to live, his lawyer says. That transformed a long-term product with hefty fees in" rel="nofollow">into a short-term, no-lose way to play the stock market. If stocks rose while the person was still alive, the in" rel="nofollow">investor did well. If they fell, the in" rel="nofollow">investor got a full refund, leavin" rel="nofollow">ing the in" rel="nofollow">insurer on the hook for the loss. Meanwhile, a broker—in" rel="nofollow">in some cases a partner in" rel="nofollow">in Mr. Caramadre's firm—would collect a share of a commission of as much as 7.5% of the in" rel="nofollow">invested amount, paid by the in" rel="nofollow">insurer. Mr. Caramadre started off by teamin" rel="nofollow">ing clients with termin" rel="nofollow">inally ill people found by word of mouth, his lawyer says, and also in" rel="nofollow">invested his own money. Profits could be small. But in" rel="nofollow">in one in" rel="nofollow">instance, an in" rel="nofollow">investor made a 30% profit in" rel="nofollow">in nin" rel="nofollow">ine months on a $1 million annuity, accordin" rel="nofollow">ing to one of eight lawsuits filed by in" rel="nofollow">insurers in" rel="nofollow">in federal court in" rel="nofollow">in Rhode Island seekin" rel="nofollow">ing to rescin" rel="nofollow">ind some of the annuity deals. Among those who responded to Mr. Caramadre's offer was Sandra Bulpitt of Johnston, R.I. She was dyin" rel="nofollow">ing of stomach cancer in" rel="nofollow">in 2008 when she saw a flier from what appeared to be a Catholic charity, says her husband, Dan. Mr. Bulpitt says the family of four was on food stamps after he quit his auto-dealership job to care for his wife. One of Mr. Caramadre's employees came to their house and gave them $1,000, Mr. Bulpitt recalls. In a second meetin" rel="nofollow">ing, the man brought a client who paid them $5,000 "as philanthropy" for helpin" rel="nofollow">ing with what Mr. Bulpitt thought was a tax shelter. His wife, heavily medicated, signed a flurry of papers. Accordin" rel="nofollow">ing to a lawsuit brought by Aegon NV, one of its units issued an annuity in" rel="nofollow">in Ms. Bulpitt's name in" rel="nofollow">in October 2008, and a total of $1 million was soon put in" rel="nofollow">into it. Ms. Bulpitt died less than four months later, at age 49, as the stock market was approachin" rel="nofollow">ing its low. When the Caramadre employee submitted a death-benefit claim in" rel="nofollow">in June 2009, the account was less than the origin" rel="nofollow">inal $1 million, accordin" rel="nofollow">ing to a spokesman for Mr. Caramadre. But Aegon repaid the full $1 million, plus $13,000 from an in" rel="nofollow">interest rate built in" rel="nofollow">into the death benefit. Mr. Bulpitt, who says he recently testified before a federal grand jury, says his wife wasn't told about any annuity. He says "they took advantage of my wife. Don't get me wrong, I was out of work. The money was defin" rel="nofollow">initely needed." Still, "I thin" rel="nofollow">ink they're scumbags for preyin" rel="nofollow">ing on the sick and sufferin" rel="nofollow">ing like that." Mr. Flanders says everyone who signed up for annuities was fully in" rel="nofollow">informed. "This was the opposite of Bernie Madoff," he says. "Everybody who was touched by Mr. Caramadre made money." He says Mr. Bulpitt got an additional $2,000 after requestin" rel="nofollow">ing more help. His lawyer, Mr. Flanders, says his client genuin" rel="nofollow">inely wanted to help the termin" rel="nofollow">inally ill. More than 150 people responded to the offer, he says. Of those, 112 weren't in" rel="nofollow">interested in" rel="nofollow">in havin" rel="nofollow">ing their names used for an in" rel="nofollow">investment plan and were paid $2,000 anyway, he says. Mr. Caramadre offered extra money to those who let him use their names in" rel="nofollow">in connection with the annuity plan Anthony Pitocco, a 74-year-old man with lung cancer, is listed on a $2 million annuity taken out in" rel="nofollow">in January 2009. In a sworn statement filed in" rel="nofollow">in an Aegon Insurance Company lawsuit, he said the signature on the annuity application wasn't his. His son, Jim, says: "Why should people be profitin" rel="nofollow">ing from my dad dyin" rel="nofollow">ing? That's just disgraceful." Mr. Flanders says there may be a few angry people, but many who received the money were happy to participate. "Far from bein" rel="nofollow">ing taken advantage of, they were bein" rel="nofollow">ing given an opportunity to make money." He in" rel="nofollow">insists that Mr. Pitocco signed the documents, and notes that he was given an extra $3,000 in" rel="nofollow">in cash. http://www.propublica.org/article/death-takes-a-policy-how-a-lawyer-exploited-the-fin" rel="nofollow">ine-prin" rel="nofollow">int http://onlin" rel="nofollow">ine.wsj.com/news/articles/SB10001424052748704479704575061392800740492?mg=reno64-wsj http://www.nytimes.com/2013/12/17/us/prison-for-rhode-island-lawyer-in" rel="nofollow">in-tale-of-in" rel="nofollow">insurance-and-death.html?_r=0 http://www.npr.org/blogs/money/2012/11/19/165524017/death-takes-a-policy-contd