This is something that some "gurus" have talked about and something I and a few other realtors were discussing the other day.  The question of the day is, 'Can you use a life insurance policy to buy the property and how would that work?"

In short, yes you can buy a property using life insurance.  It may not seem to be as common a method, but it is one people can use that is not as well known.  So let's discuss how this would work.

To use life insurance to get a property, you would need to do what is referred to as a collateral assignment.  It is not much different from the traditional way of buying a home.  Typically, when you are getting a mortgage on a house the property is assigned as the collateral.  Meaning that if you default on your payments the lender can repossess the property.

It works similarly with life insurance.  Although, for a lender to accept this as a viable option they have some conditions.  The main one is that it be a whole life or term life insurance policy.   As these kinds of policies hold a cash value making them a tangible asset.  No different from a house or a car.

Using a life insurance policy is less risky for a lender.  When someone takes out a mortgage the traditional way there is a good chance the lender could suffer great losses if the borrower defaults.  However, if a borrower defaults and assigns their life insurance policy as their collateral it can work in favor of the lender.  The lender can use the value of the death benefit to pay off the outstanding balance on the loan and recoup losses.  Then the remainder of the death benefit would be paid to the beneficiaries of the policy.

This method does have disadvantages for the policyholder.  One is that the holder will most likely pay a higher premium.  There may also be even bigger consequences if you default on your payment.