How To Buy Other People's Life Insurance Policies

Middle-aged patients with doctors

You need an insurance policy, but maybe you do not have enough resources to acquire one. It could also be that you are helping out a friend who wants to get rid of the policy. Another reason may be helping a sick friend and getting money fast. Rude, but real. This situation was most common sometime during the 1980’s when AIDS started to spread. Usually, a sick person with a life insurance policy has 3 options on gaining the money that he urgently needs to buy the necessary treatment and medications.

Since most policies only give the benefits upon the death of the owner, the first option is to surrender the life insurance policy and receive the cash surrender value. The owner gets a part of the money that was paid for the insurance as sort of gain from an investment. This will be the last and only money the owner will be gaining from his policy. If in case the owner dies, the dependents would not be able to receive anything from the policy anymore. The second option is borrowing against the policy. The company will lend you money at negotiated interest. But, this would only leave you with more debts. So in most cases, the sick person chooses to sell his life insurance policy to another person. It is somewhat the more practicable solution among the two. The amount you get from the deal is usually bigger than the current cash value you will receive when you surrender your policy. You would also stop paying for the premiums and your tax will be lessened. However, your beneficiaries still would not have the benefits of the policy after you die.

Buying out other people’s policy was made legal in 1911 by the Supreme Court of the United States. It emphasized that insurance policies were real properties, so they can be sold. The one who buys the life insurance policy is also called an investor. And since the policy is considered a property, there are also brokers and companies who buy and sell pre-owned life insurance policies. Buying someone else’s life insurance policy is simply a transfer of ownership.

This is still a deal. So to make sure that you are not cheated on, make sure that it is legal and proper processes must be followed. First is to find the person who wants to sell his life insurance policy. You could go to a viatical investment company, approach a life insurance policy broker or contact a friend whom you know is selling his policy. You are after the money you will be gaining from the deal right? So the things to consider would include:

  • The remaining life expectancy of the policy owner. If the sick person is near death already, the higher is the worth of the policy and the faster you can receive the benefits from it.
  • The kind of life insurance policy. This would also dictate the price you have to pay for such deal and the benefits you will be getting from it. The higher the premium of the insurance, the greater the benefits and the greater the price you have to pay to get the policy. Make sure the benefits you will get in exchange will be worth the money you paid for it. You can do some computations yourself. Formulas on the returns of investment are stated in the terms and conditions of the policy.
  • Verify that the person you are making the deal with owns the policy. Contact the insurance policy and ask for papers and evidences of ownership. Or if you avail the services of the broker or the viatical investment company, insist that they do so.

Finally, to close the deal, process the change of ownership and change of beneficiary forms. You should also change the address where the payment notices should go. Make sure that the owner affixes his signature on the documents. Send all the documents to the insurance policy company and leave some copy for yourself as proof of transfer.


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