Insurance Programs Are Not All Alike

To the Editor:

Your article on income-producing life-insurance projects ("For Charities, a New Twist in Raising Money: Corporate Investors in Life-Insurance Policies," August 12) unfairly raised serious concerns about the integrity and credibility of all such projects, and the companies that promote them. To link a successful firm such as FOLI with others having no known record of successful completions -- and which apparently have a completely different approach to the market -- is misleading.

FOLI successfully completed a project in Fort Worth almost five years ago and is now completing a popular project in southern California. Our FOLI projects are not based on corporate investors in life-insurance policies; the policies are purchased and owned by the charity. We have never intimated that a FOLI project is risk free. Foundations considering participation in our FOLI project must understand that, like any other long-term, high-potential funding project, FOLI involves inherent uncertainties. We go to great lengths to insure that the foundation principals understand this.

We have always disclosed, and will continue to disclose, all pertinent aspects of our project to interested charities. Much legal and actuarial research has been done with regard to the potential problem issues outlined in the article -- i.e., insurable interest, eligibility to buy insurance, taxability, etc. -- and we continue to monitor those issues.

FOLI participants are chosen to meet an independent actuarial matrix and not to fit into the insurance company's predictions of when people will die. Decision makers at the charity must have a high comfort level with all components of the project or we discourage further consideration. We encourage charity officials to seek knowledgeable professional legal, actuarial, and accounting advisers to help them assess the suitability of a project. A FOLI project is a very long-term program and not a get-rich-quick scheme.

Without new and creative fund-raising concepts that work, only the big-name, well-endowed non-profit groups will ever make much impact. We hope that your readers will understand that a FOLI project is a legitimate, credible undertaking that can be a very attractive arrangement between a charity and those interested in helping it achieve its long-term mission.

Richard C. Johnson
Palm Desert
, Cal.


To the Editor:

As I read the description of Capital Partners' life-insurance fund-raising plan, I felt very much like I did on the streets of New York. I watched a man with three cards and a fast patter. All the "sucker" had to do was identify which card (face down) was which.

As I understand this, Capital Partners gets its share up front. The personal beneficiary gets a tiny piece later. The investors get an 8.3-per-cent return. The insurance company pays premium taxes, income taxes, salaries, and other expenses and expects to make a profit. The charity gets big bucks. Just a wild guess, but it seems the insurance company needs to earn at least 12 per cent on invested capital to make it work.

I am a retired life-insurance person. I have a strong belief in life insurance for situations where the death of a person will cause financial problems for a survivor. However, buying life insurance on a large number of people in the hope of making a profit does not work mathematically.

This scheme reminds me of the person who figured he would be sure to win at roulette. He would put five chips on each number, plus five each on red and black.

James R. Dudeck
Oviedo, Fla.