viatical settlement

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Viatical Settlement

A transaction in which a life insurance policy holder sells his/her policy to a third party. The situation occurs when the policy's fair market value exceeds the cash surrender value that the insurance company offers. The third party is known as a life settlement provider, who, in the United States, must abide by applicable state regulations. The life settlement provider becomes the policy's new beneficiary, is responsible for maintaining premiums, and upon the death of the insured person, receives the benefit. The secondary market for life insurance began growing in the last part of the 20th century. In a viatical settlement, the life settlement provider is speculating on how long the insured person will live; indeed, it is in the life settlement provider's financial interest for the insured person to die as soon as possible. A viatical settlement is also known as a life settlement.

viatical settlement

The purchase of a terminally ill person's life insurance policy for a certain percentage of the policy's face value. The amount paid depends on the size of the policy and the length of time the policyholder is expected to live. The company that purchases the policy begins paying the premiums at the time of purchase and collects the death benefits when the insured dies.

Viatical settlement.

Technically speaking, a viatical settlement occurs when a life insurance policy is sold for cash to a third party before the original owner dies.

Most viatical settlements involve terminally ill people with life expectancies of less than two years who choose to sell their life insurance policies to raise money for their medical care.

In a viatical settlement, the third party pays the former policy owner an amount that is typically more than the surrender value of the policy, but less than the death benefit. When the insured person dies, the new policy owner collects the death benefit and makes a profit on the difference between the amount paid to the insured and the amount paid on the claim.

Some businesses specialize in viatical settlements, and may resell them as investments, arrangements that are regulated by the state in which the policies are sold.

Because viaticals are controversial, more complex than they seem, and have been aggressively and sometimes misleadingly marketed, both people considering selling their policies and people considering investing in them are advised to proceed with caution.

References in periodicals archive ?
Viatical settlements allow insured policy owners to sell their insurance death benefits to investors.
Court of Appeals for the Fourth Circuit ruled that the McCarran-Ferguson Act, a federal law giving states authority to regulate insurance matters, also covers viatical settlements.
The VLSAA is an Orlando, FL-based non-profit trade association founded in 1994 to serve as a national resource center, providing information about viatical and life settlements.
Singer analyze the effects of an active secondary market in several financial service industries (home mortgages, for example) and compare them with the developing secondary market in life insurance policies that is provided by viatical and life settlement companies.
If viatical sellers don't offer the 15-day cooling off period, they have to register both the viatical and themselves with the Securities Department before they can sell it, he said.
While most viatical settlement companies are legitimate, others mislead, deceive, or even defraud viatical investors.
Since most residents and their families are probably unfamiliar with viatical settlements, it is in their best interests - and those of management, social workers and others in direct contact with residents - to make them aware of this financial resource.
Part I of this Article provides an overview of the creation and growth of the viatical industry as a response to the increasing medical costs and decreasing income streams facing AIDS- and HIV-infected patients.
In the first possible event, the insured irrevocably assigns his life insurance policy to a Viatical settlement company in consideration of a payment of an accelerated death benefit by the company (not the company that issued the policy).
Specifically, with regard to terminally ill insureds, a person meets the requirements if he meets the requirements of the Viatical Settlements Model Act of the National Association of Insurance Commissioners (NAIC), Sections 8 and 9; and meets the NAIC's requirements (relating to standards for evaluation of reasonable payments) in determining amounts paid by such persons in connection with such purchases or assignments.
And in any case, while it may once have been true that a single test showing a lowered T-cell count could result in a large viatical settlement, that's not the case today.
It allows those suffering from chronic and life-threatening illnesses to receive the proceeds of living benefits in the form of viatical settlements free of any Federal income taxes.