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Life Insurance

Life-Insurance Lockup

Creative "investors" are offering cash and loans to help buy a large life-insurance policy -- on condition that the investor eventually becomes the beneficiary. Regulators believe people who participate may be unable to obtain insurance they do need. So state insurance commissioners vow to clamp down on these deals.

But there's a catch. Rules in the works could also spoil your right to sell existing life insurance for cash. These life or viatical settlements can be useful in a pinch because you generally get more money than if you drop a policy for the insurer's cash-surrender value. The changes proposed include an excise tax on all life settlements and a lockup period that would ban you from selling a policy to a viatical company until you've had it five years. Or insurers may get to write new policies with restrictions on sales to third parties without company consent.