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Here’s how it works: once a person decides to sell his/her life insurance policy, the third-party investor does a bunch of research, usually based on the the seller’s medical records, to see how long the person is likely to live. (This is important, as the third party investor is on the hook to pay the sick/dying person’s life insurance premiums until their death.) Then the seller and the investor agree on a price. Say we’re talking about a $500,000 life insurance policy, and a person with a two-year life expectancy; the investor might offer $300,000, in hopes that the difference will both cover the cost of paying premiums for the rest of the seller’s life and leave room for profit.
Somewhere between the very bright people who claim that you can make money off your death before you die, and the very bright people who claim that you can't, lies the truth. To find that truth you must first understand the concept of a "life settlement", and to understand that, you must understand what its immediate predecessor, the "viatical settlement" are all about.
Originally posted by Blackmarketeer
The big downside in selling your life insurance to an investor is your beneficiaries (your kids) will lose out, big time (assuming you have kids). For most people, this is the inheritance they would be leaving their children.