Over the holidays, Reader John emailed me a question about secondary sales of life insurance policies. He had learned that his father was going to cancel his term-life insurance policy at the end of the month and he was considering “buying” it off his father by paying the premiums and collecting the death benefit. We didn’t get into the numbers but he said that the premium was increasing over the next three years, until his father hits 65, and then the value is cut in half. He ran the numbers and believes there’s a 5% annual return if he passes within 28 years (by age 91). He wanted to know if I thought this was a good idea.
It’s always tricky when it comes to family and money and it’s especially tricky if it involves death, family and money. All of the problems I see with this plan have to do with relationships and navigating those issues are going to prove more challenging than navigating the financial aspects of this idea.
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