A finical advisor as made the following suggestion.  I should insure
my 84 year old mother for one million dollars, pay one hundred
thousand dollars (100,000) the first year, no premium is due the
second year and sell the policy in the third year for three hundred
thouand dollars.(300,000.) Is this sound investment advise?

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Request for Question Clarification by ragingacademic-ga on 22 May 2004 16:50 PDT

harold1052 - thanks for submitting your question to our forum.

As 4keith points out - we would need more information about this policy.
Don't take this the wrong way, but if your Mother is 84 years old, why
is he suggesting that you sell the policy in three years?

Please provide as much info as you can.

Most likely, this is some kind of scam, but maybe not...
Generally the rule of thumb is that if it sounds too good to be true - it is...

thanks,
ragingacademic

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Clarification of Question by harold1052-ga on 23 May 2004 07:51 PDT

The sole purpose of the insurnace pollicy, purchase and sale, if for
finical gain.  AndI should note the following; This same adviser is
controling three quarters of a million dollars of the family estate.
The queation remains; shoud I follow this man's advise, or cut and
run.

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Request for Question Clarification by ragingacademic-ga on 23 May 2004 10:29 PDT

harold1052 - thanks for the clarification.  I'm not sure what you are
looking for in terms of a response, so please evaluate the following
and if you believe it is sufficient I will repost as a response to
collect on the fee.

Obviously, if you have reason to believe - based on past experience
with this financial advisor - that he can deliver on this deal, then
it is worth doing.

However, typically, insurance is at best a SAVINGS and not an
INVESTMENT vehicle.  What this means is that in the best of times you
can probably expect a net yield of between 2% and 3% on an insurance
policy.  Insurance companies may report much higher potential returns,
but such returns are not quoted as net.

Therefore, it is highly unlikely that any insurance policy could
return anything remotely close to what this advisor is offering.  But
without more information concerning this specific policy it is
impossible to say more with any degree of certainty.

Now, here's a big "IF" - if such a policy were transferable, then you
could potentially make some profit by reselling it, but I still doubt
the profit would be anything like what this advisor is promising.  Why
could you make money?  Well, consider an 84 year old individual - with
every passing year, the probability that this individual will pass
away increases significantly.  Therefore the older the individual the
more expensive it will be to buy such a one million dollar policy.  So
if the cost of taking out such a policy today is $100,000 it will be
greater than $100k next year and greater still two years hence.  But I
do not believe such policies are transferable - if you could sell such
a policy, it would be akin to trading in options on someone's life,
and that is not legal.  And I do not believe the insurance company
will be interested in buying the policy back - most likely, there are
additional payments due to the insurance company in years 3,4,5 etc
and the insurance company would likely rather collect on those.

A good site to read up on and understand insurance policies is - 

http://partners.financenter.com/consumer/learn/guides/termlife/termbasics.fcs

I do not believe you should follow this individual's advice, and if he
is managing such a significant sum I would proceed with caution on all
fronts.

best of luck,
ragingacademic

Discuss this with a certified financial planner.  It sounds a bit
risky and not 100% guaranteed.  Can your advisor provide a reference
of anyone that has actually done this successfully?  Is he
recommending that you get this policy through a certain company--if
so, then please name the company.  Be very careful about getting as
much detail about this as you can before you decide to invest in this.

4KEITH (I'm NOT a GOOGLE Researcher)

Harold1052 --

A 100% per-year return should be a red flag, as it is WAY out of line
with normal returns for life insurance.  Not just would I not follow
his advice, I'd start investigating closely if this person is
controlling financial interests in your family.

Best regards,

Omnivorous-GA

You may also want to check out the Wealth Management Report: Asset
Allocation and Diversification at
http://knowledge.wharton.upenn.edu/index.cfm?fa=viewFeature&Id=984