Buy Insurance on the Life of Another! Good Business for all or a Scam?
The Minnesota legislature is looking into what has become a very big business. In summary, the life insurance companies want to ban the practice, whereby a policy holder/owner sells the right to collect the death benefit for a payment now. The practice is legal and even international in scope. Thanks to the Minneapolis Star tribune for the report.
In essence, a person can purchase life insurance when elderly, make the initial deposit, and then sell the rights to collect on the policy. The policies then become assets that are bought and sold, bundled with other policies, and traded. The Insurance companies don't like them even though the insurance company gets exactly what it bargains for. The premiums. The insured gets what they bargained for, the policy on their life, and when sold they receive a payment for the buyer. The sellers receive a percentage of the death benefit for cash now instead of the estate or beneficiary receiving the payout when the insured dies.
The buyer pays the premiums until the insured dies. This of course means that the insured will not let a policy lapse after they can't afford it anymore. The insurance company keeps all the premiums it receives, and never has to pay on a lapsed policy. So, the number of large policies lapsing will be reduced: and the profits are reduced.
The insurance policy is a contract, and the policy owner should have the option to sell their right in a contract. It will be interesting to see what the legislature does with this issue, because the market is international, not just in Minnesota. I don't see how the state can regulate a market that they can't control. Also, people should be able to sell there contract rights: it is the American way.
