Life Insurance Scam ( So to Speak )

Are you saying that they buy into other people's policies? I don't understand how they could do that. Perhaps you're saying that they make payments for the other person and then they are repaid when that policy pays out (the person dies). That is a business arrangement between themselves and the other person. Sounds weird but not a scam if it's an agreement made in good faith.

As far as borrowing from their own policy, I don't see how that is a scam or even a problem. They are borrowing from the money that they have already put into the policy. And they are paying a penalty which means they've lost the amount of the penalty. If they should die then the amount they have borrowed will be withheld from the payment.

They have paid $50,000/yr into an insurance policy worth $2-3 million. When they borrow, they are removing that amount from the amount they've already paid. It's their money.

After your SWH. It is their money and their business how they spend it. No one will have to pay anything because the amount they borrowed will be deducted from the pay out of the policy. It is not a debt to be repaid by someone else. It's their money. It does mean that their beneficiary will receive less money. Are you a beneficiary?

I am not sure of your question but a Whole Life Policy builds cash values over time. If you need to borrow from the cash value for anything you can do that. Say you have a policy that is for $100,000 and it has built up a cash value of $20,000 and you borrow $15,000 from the cash value of the policy for a down payment on a house. If you never re-pay that loan your beneficiary would get a payment of $85,000 --- the $100,000 policy minus the $15,000 you borrowed. Does this answer your question?
Term life policies do not build cash value so you cannot borrow from them.

I sold life insurance years ago but I have never heard of anyone being able to buy into someone's else's policy. You can contact the insurance commisioner for your state and ask questions. The insurance commisioner is the governing body for insurance companies who market their products in your state.

If they've only been buying into a life insurance policy for 5 years, it sounds like a variable/universal policy. Those can jump up in value quickly, especially when you put large sums of money into them in a down market. When the market goes up, your policy goes up with it. It's perfectly legal for them to borrow against it. Whether it is a smart financial move depends on many different factors. If they are borrowing to buy cars just to drive a fancy car, it's not a smart move. But it's well within their rights. Their death benefit will be reduced if the policy is still in force at the time of their death. With the way they are going, they may deplete the policy well before that time.

As far as purchasing another insurance policy, this can be legal, but there is a lot of fraud out there as well. Especially if they are just buying into a portion of a policy and not buying a entire policy outright. If the insurance company finds out about that, they will research the claim and could deny paying it. It's a riskier investment for sure. Based on the little information you have, there is no way to tell if they have pursued this in a legal manner.

What? Are you talking about the JG Wentworth type companies. They buy out annuities, life insurance, structured settlements, stuff like that?

Like a reverse mortgage it isn't debt, it is buying the asset below future value. What the are basically doing is charging you interest up from and when you die the lump sum goes to the company or in the case of a reverse mortgage they get the home not their airs.

They may have been paid out triple what they paid in but if the death value is two million they are still making 1.25 million in interest off of a 750,000 dollar loan. Sounds about right depending on their age.
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Oh as far as penalties go if the cash value of a life insurance policy is 500,000 and you only paid in 250,000 you get the penalty for cashing it out, and you will be taxed on the income of 250,000. The company that buys them out eats that tax as well. All in the calculations, all completely legal.

no, dear,they CLAIM to be doing well for themselves, if the person with the insurance policy borrows money against the policy and then dies the money plus interest will still have to be paid, plus dont forget the death tax is fifty percent, and the death tax gets paid first, if the life insurance policy has to be liquidated in order to pay the death tax, then thats what the tax guy does, this is where the middle man could lose EVERYTHING, the face value of the policy, any fees and fines, plus money borrowed against the policy, if when the policy holder dies, there is not enough money to pay the balance due on the deathtax. walk away from this "deal", its no "deal". plus its illegal
K. h.