Be cautious about investing in someone else’s life insurance. In a typical transaction, the person holding a life insurance policy sells it to a third party in return for a portion of the death benefit. The broker then sells shares of the policy to investors, who collect a share of the death benefit when the original policyholder dies.
State securities regulators say that such investments may be legitimate but the inherent risk of gambling on when someone will die is not always adequately disclosed. Moreover, many investors have been defrauded by promoters and sales agents. Before making any investment, state regulators urge you to ask the following questions:
- Are the seller and investment licensed and registered in your state? Call your state securities regulator to find out. If they aren’t, they may be operating illegally. To get the name and number of your state regulator, visit www.nasaa.org or look in the white pages of your telephone directory under “state government.”
- Has the seller given you written information that fully explains the investment? Make sure you get proper written information, such as a prospectus or offering circular, before you buy. The documentation should contain enough clear and accurate information to allow you or your financial advisor to evaluate and verify the particulars of the investment. Watch for jargon that sounds sophisticated but makes no sense.
- Are claims made for the investment realistic? Some things really are too good to be true. Use common sense and get a professional, third-party opinion when presented with investment opportunities that seem to offer unusually high returns in comparison to other investment options. Pie-in-the-sky promises often signal investment fraud.
