Life settlements have emerged as one of the hottest "alternative" asset classes out there, but the aggressive way these products are created makes insurance carriers nervous.

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The American Council of Life Insurers recently sent SEC Commissioner Mary Schapiro a letter asking her to prohibit the bundling of death benefits into marketable securities.

They don't like the way the underlying coverage has been aggressively marketed to seniors looking for a way to pay for their life insurance.

In a life settlement, the insured party keeps the policy but "settles" the death benefit by assigning a third party as beneficiary. That party then pays the premiums and cashes the check when the original person dies.

It's becoming a bit of a craze in markets where investors are struggling to find income sources that aren't correlated to interest rates or corporate profits.

Unfortunately, as we learned in the mortgage boom, securitization puts massive pressure on the originating entities to keep generating new product.

That means aggressively targeting seniors and other strangers, and that's what the ACLI wants the SEC to nip in the bud right now.

They want these currently nebulous products to be classed as securities in order to ensure that people who package and sell them to investors are properly regulated. But they also want to exempt individuals who simply want to sell their policy.

In theory, there's a lot of money in these products for insurance agents, but because institutional investors have a lot more money and better underwriting skills than individuals, mass securitization would hurt the insurers' margins.

More policies that actually pay out instead of simply being abandoned means more expenses for the carriers.