Can I earn money by buying life insurance policies?
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Asked January 30, 2012
It depends on if you're looking to earn money from your own life insurance policy or if you're interested in buying a policy for someone else. There is an earning potential built into some types of life insurance policies, such as whole life insurance or universal life insurance. However, life insurance companies are not in the business of helping you profit from the deaths of strangers, and you will need to show an insurable interest before they will write a policy on anyone who is not an immediate benefactor or close relative.
Insurance companies will not write you a policy for someone that has no connection to you, such as a movie star, or someone who lives down the street. The reason that you can't take out policies on those people is expressly to prevent all of us from taking out a policy on, for example, Warren Buffet or Bill Gates, knowing that we would receive big money when those people passed away.
However, some types of personal life insurance do have methods of earning profits, but most policies with an earning potential also carry the potential for losses as well. Whole life insurance will accrue a cash value over time, based on the amount of money paid into the policy plus interest earned on that amount. The money you would earn would not be significant, but it would be over and above your actual payments.
Universal life insurance, on the other hand, has the potential to earn significant profits. With this type of policy, you have the ability to control how the accrued cash is invested, and successful investment options could be highly profitable. The catch is that making the wrong investments could result in a loss of the interest and accrued cash value. The face value of the policy would not change, but the earnings potential could be greatly diminished or even negated completely.
Answered January 30, 2012 by Anonymous