A Novel Way to Raise Cash: Sell a Life Insurance Policy on Yourself

by admin on 27/06/09 at 12:00 pm

If you’re a senior and need to raise some cash, here’s a novel idea that more and more people are turning to: selling your life insurance policy. According to Kiplinger’s magazine, in 2006, $6.1 billion in life insurance policies with death benefits was bought and sold.

Here’s how it works: when you sell your policy to a stranger, that person pays you a cash sum and continues to pay the premiums on the policy to keep it current. Here’s where it gets weird: the stranger to whom you sold your policy only profits when you die.

These transactions are called life settlements and they are becoming more common. Huge banks like JPMorgan Chase and Goldman Sachs invest in packages of life settlements because the return is not correlated with the stock market. So as an investor, life settlements can be a great way to diversity and hedge your stock market exposure.

Investors in life settlement policies prefer people over 65 who are insured for at least $500,000 or more. Whether you are a senior selling a life insurance policy or an investor looking for a hedge against the stock market, it seems likely that transactions in life settlement policies will only continue to increase.