The purchase of other people's life insurance policies is a viatical transaction. This practice became popular in the 1980s as AIDs victims began to show up more frequently. The investor purchases the policy for much less than the face value. However, since the practice became popular, many insurance companies have offered riders to give half the face value to the insured if they had a terminal disease. These were free, but not every policy has one.
Decide how much you're going to pay for the policy. If you do this as an investment, there are several factors involved in this scenario. The first is the amount of premiums paid by the insured. The second is the life expectancy of the insured and last is the cash value.
Calculate your return. If the life expectancy of the insured is two years, and you paid $5000 for a $10000 policy, your compounded annual growth rate is 41.42 percent.
Figure the calculation yourself or use the calculator in Resources. Use the formula for the compounded annual growth rate, which is (ending value/beginning value) times the exponent (1/the number of years) minus 1. The calculator is much easier.
Make sure the insured is the owner. Request that they call their company on speakerphone or provide recent papers to show ownership of the policy.
Ask that the person get a change of ownership form from their company and a form to change the beneficiary. On the form, you'll find an area requesting the amount paid for the absolute assignment of the policy. Fill in the amount you paid. There should be a spot to show that the new payment notices go to you, if you purchase the policy as an investment. Once the insured signs the form, make several copies.
Fill out the change of beneficiary form and make yourself the beneficiary. Either fax both forms to the insurance company, drop the forms at a local office or mail in the originals. The easiest method is to call and ask for the most convenient method for the company.
Continue making the payments on the policy. If you're simply transferring a policy from a parent to a child for estate purposes, show the transfer made for "love and affection" or pay only the amount paid in premiums by the insured to avoid a taxable incident for them.
