Life Insurance Lowdown

Imagine purchasing a life insurance policy with a $1 million death benefit. Then you sell it to investors who in exchange will pay you $50,000 in cash. And the best part? No money needs to come out of your pockets! Sounds like an unbelievable offer? Well if you are in your late 70s, chances are someone out there is trying to sell you something like this. Put simply, this is the face of the speculative market for life insurance policies that has been around for sometime now.

Of course, there are laws in place to restrict life insurance companies from issuing policies to people with no genuine, insurable interest in the life of the person being insured. However — and this is the gray area — an insurable interest is not required when the ownership of an existing policy is changed. Some life insurance companies have taken or are considering actions to prevent use of their policies in such transactions. To make the transactions impractical they are sponsoring congressional legislation that would place a heavy excise tax on certain ownership changes.

Imagine purchasing a life insurance policy with a $1 million death benefit. Then you sell it to investors who in exchange will pay you $50,000 in cash. And the best part? No money needs to come out of your pockets! Sounds like an unbelievable offer? Well if you are in your late 70s, chances are someone out there is trying to sell you something like this. Put simply, this is the face of the speculative market for life insurance policies that has been around for sometime now.

Of course, there are laws in place to restrict life insurance companies from issuing policies to people with no genuine, insurable interest in the life of the person being insured. However — and this is the gray area — an insurable interest is not required when the ownership of an existing policy is changed. Newsinfo.iu.edu reports:

Some life insurance companies have taken or are considering actions to prevent use of their policies in SPINLIFE transactions. To make the transactions impractical they are sponsoring congressional legislation that would place a heavy excise tax on certain ownership changes.

Read more: Older Americans increasingly being targeted by speculators benefiting from life insurance purchases