Harry Gross: An investment idea to die for

DEAR HARRY: Some friends and I have been approached by a local lawyer to form a company that will invest in life-insurance policies. The idea is to buy existing policies from owners who need immediate cash, continue to pay the premiums, and get the payoff when the person insured dies. The cash paid will be more than the surrender value of the policies. To hedge against the possibility of people living too long, a substantial number of policies have to be bought. He is asking potential investors to put up $100,000 each. He recently was employed by an insurance company in its legal department and practices insurance law. I have the money available from a municipal bond that was just called. What do you think?

WHAT HARRY SAYS: This deal depends entirely on one man. Therefore, you must investigate him as deeply as you can. Use the Internet; contact the bar association; ask him for references; get a credit report on him; get a business plan; find out what controls will be in effect for the new company; determine who will be the company's CPA. Keep in mind that it may be years before any of the policies mature despite the number the company has bought. I hope he also considers buying the rights of estate beneficiaries who will receive inheritances upon the death of a primary beneficiary. I have known individuals who have done very well with these investments.