Question

Buy the life insurance policy of an ailing or elderly person (e.g. your parents), pay the annual premiums while the person is alive, and then collect the death benefit when he or she dies. The sooner the insured person dies, the more the investor makes. Do you agree or disagree with this? Explain your answer.

Answer 1

Investors take the life insurance policies of person who is living, then he pays all the future premiums then as a result of which proceeds of the policy is received after the death of the insured. So at this point of time, the investor receives full benefit after the death of insured as buyer provides the policyholder with an amount which is less than face value of the amount Invested. Therefore the buyer or the investors gain the greater profits if the insured person dies sooner because he pays fewer or less premiums. Conversely , the benefit of the investors declines the more the insurer lives and as a result the more premiums they have to pay for it