Investors large and small are looking for a new way to return to the juicy profit level of sub-prime's heyday, and one product beginning to gain popularity is life settlement funds, AKA Grim Reaper funds.

In a life settlement, investors pay the elderly cash today in return for the money from their life insurance when they pass. Yes, it sound ghoulish, but when has that been an impediment on Wall Street? With $26 trillion of life insurance currently in effect, the prospects are enormous.

In the same way that mortgages were bundled and turned into securities, companies such as Credit Suisse are buying up quantities of policies to create funds. Investors are hoping for returns as generous as 20-40%. Last year, seniors sold life settlements with a face value of $11.8 billion. But I have some serious reservations above this investment vehicle.

You'll recall that the sub-prime mortgage fiasco was due in large part to fraud on behalf of those selling mortgages to anyone with a pulse, regardless of qualifications. Viaticals were a precursor to life settlements. In the 1980s, investors bought the right to life insurance settlements from AIDS victims who they expected would die soon, never expecting that the cocktail would kills their profits.

This seamy business attracted scam artists like flies to a dump. In a 2000 Florida court case the jury found that almost half of the viaticals offered as investments by companies in that state were fraudulent. Can the life settlement industry avoid the same fate?

Accurately projecting the life span of those from whom the policies are purchased is a key to the profitability. What happens if our medical care changes substantially? What if we cure cancer? What if the swine flu turns dramatically more deadly? These factors add risk to the investment. The industry plans to manage these risks by doing a better job of vetting those buying and selling the settlements, and creating bundles of policies that include a wide variety of diseases and maladies.

The return on investment also depends on the dependability of the insurance companies to pay claims. As we've seen, the fortunes of these companies are deeply intertwined with the general economy, and if some were to go bust, so would the life settlement funds that depend on their payments.

Finally, there's the question of ethics. Some people (including yours truly) would be very uncomfortable knowing that widespread, unexpectedly early death would result in a windfall for them.

Ironically, one of the biggest customers for such a product? Public and private retirement funds, which already stand to benefit most from early death.

Don't be surprised if, in a few years, pundits begin to talk about a death bubble. I just don't want to be on one. Or in one.