I’ve been getting scolded by a portion of the life settlement industry because I recently used a couple of unpopular terms in my Fort Worth Star-Telegram Dave Lieber column to describe so-called “life settlement contracts.” That’s the more acceptable term used to describe the investment process in which holders of life insurance policies in need of quick cash sell their policies to others.

The investors pay the premiums until the person died. Then all the benefits go to the investors, instead of the original beneficiaries of the policy. If someone lives longer than expected, investors may lose money. The policy holders, however, get their cash while they are still alive.

I called them by their nicknames — ”death bets” or “death contracts.”

Really, that’s what they are, because the investors are betting that the elderly whose policies they purchased will actually die when the actuarial tables say they will. If they don’t, investors lose.

It’s a timely subject, because in Texas, where I live, the Texas State Securities Board recently charged a Texas company that peddles this stuff — Retirement Value LLC — with fraud.

Doug Head, executive director of the Life Insurance Settlement Association in Orlando, wrote to me: “References to ‘death bets,’ ‘death bonds,’ ‘death contracts’ seem unenlightened to me.”

He adds, “Life settlements are not unique in thinking about mortality. In annuity sales, there is a profit motive related to early termination of the annuity. Insurers benefit the sooner the death occurs in an annuity transaction. Is that a ‘death bet’? Pension plans benefit if their pensioners die in a short time rather than in a long time? Is that a ‘death bet?’

“This sort of language is an unnecessary diversion that focuses from the serious and simple fact that longevity or aging are serious issues.”

I also heard from Life Partners, Inc., a Waco, Texas company in the life settlement business: “Frequently, we see the media use this negative, emotionally charged phraseology to describe life settlement investing. However, in our experience, the only folks that label life settlement investments using ‘death’ in its phraseology is the media. Industry participants do not generally use this phraseology.”

The company also sent me an example of its advertising. I was a little taken aback to learn that one of the greatest ad pitchman of the past century — Ed McMahon — is still selling. From the grave. In the company’s ad, his photograph is displayed along with a testimonial from his widow attesting to how Ed sold his life insurance policy when he was desperate for cash before his death. And you thought Donald Trump rescued the McMahons when he bought their house for them to avoid foreclosure? Think again.

The top regulator of these “bets” in Texas says of the life settlement industry, “It is the wild west. It’s always been a problem, but the amount of fraud we’re seeing now has, anecdotally, increased tremendously.”

Call it whatever you want. This is a serious problem.

Retirement Value LLC of New Braunfels, Texas has been placed into receivership by the state which charged it with fraud and deceptive practices.  The company and two executives were charged with defrauding Texas investors, violating securities laws and not properly disclosing relevant information to investors. The state has seized $22 million in assets.

Court papers allege that Retirement Value collected $65 million from more than 800 investors, whom company President Richard Gray and Chief Operations Officer Bruce Collins promised a “baseline expected income” at an annual rate of 16.5 percent.

Securities board spokesman Robert Elder told me that investors should be “extremely cautious” when a promised rate of return is that much higher than the guaranteed return on government-backed investments such as certificates of deposits and Treasury bonds.

Of the $65 million invested in Retirement Value, $9 million was paid as commissions to unregistered sales agents selling life settlement investments on behalf of Gray’s company, the state charges, and company officials and other investors kept another $8 million.

Earlier this year, the state charged AGAP Life Offerings of Plano, Texas of not being licensed and registered and making promises to investors that were misleading and deceptive.

Last year, the state  securities board seized millions of dollars in the accounts of National Life Settlements of Houston. The company was charged with running a $30 million fraud. The state securities board used undercover agents posing as investors and sellers to make its case against the company.

The feds also charged American Settlement Associates of Houston in March of a fraud scheme that netted $2 million. The Securities and Exchange Commission says company owners used the money “for lavish personal and business expenses, including jewelry and casinos.” The company is in receivership.

Texas’ top regulator, Joe Rotunda, says one reason these “bets” are such risky business is because investors can’t verify the assertions of promoters about the life expectancy of the policy holders. Is the policy holder as ill or as elderly as promoters say? Who knows? Investors aren’t supposed to know whose policies they are buying.

Companies that stay out of trouble say these troubled companies give them a black eye.

Life Partners says the primary reason it became a publicly traded company was to “create transparency for investors.”

“To these day, we are the only publicly traded company in our industry,” LP says. “As such, any investor can examine our financial statements to ascertain the financial health of the company.” The company is also audited annual, an additional layer of protection, it says.

There’s a smart way, though, to check it out before you jump in on these investments: contact your state’s securities board and ask them to look up the individuals and companies you are dealing with. Find out if they are properly licensed and registered.  Check with your state’s Department of Insurance, too.

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Dave Lieber, The Watchdog columnist for The Fort Worth Star-Telegram, is the founder of Watchdog Nation. The new 2010 edition of his book, Dave Lieber’s Watchdog Nation: Bite Back When Businesses and Scammers Do You Wrong, is out. Revised and expanded, the book won two national book awards in 2009 for social change. Twitter @DaveLieber