Can I buy another person’s life insurance policy?
Life insurance policies can be bought and sold by people not covered by the policy. Although this sounds like an odd thing to do, there are good reasons why a person might want to buy someone else’s life insurance, as well as why a person might want to sell their a policy.
Life insurance tends to be more cost-effective if purchased over a long term. Of course, this means the policy holder’s circumstances may change dramatically during these years. Children grow up and start earning money, perhaps at an earlier date than anticipated through not attending college. A spouse may die or file for divorce, or if the life insurance policy was purchased in support of a home loan, the loan may be paid off early or the home may have been sold. For all these reasons, the life insurance policy may no longer be needed, and therefore the policy can either be cancelled or it can be sold.
The reason why a person might be interested in buying someone else’s life insurance is because the policy does have some value in it. A long-term life insurance policy tends to have very different risks at the start of that time span than at the end, due to different life expectancies at different ages. But the premiums generally don’t reflect this extra risk, as such policies tend to have a uniform premium across the term. For this reason, such a policy won’t have much value at the beginning of the term, but at the end the premiums will be considerably lower than the chance of getting a payout from the policy, and this gives the life insurance policy a certain amount of value.
In many cases, the loan can be sold to the life insurance provider. This is called surrender, but as the policy holder will have only one provider (and therefore no competition), and as this is the most convenient way of ending the policy, the value of the surrender can be considerably less than the value of the policy.
It’s possible to offer people more than the surrender value for their life insurance policies. This can be done in two ways. Either it can be bought directly through a broker, or it can be bought as part of a fund. For a beginner the fund route can be considerably the better option.