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 ?
The qualifications for a life settlement will differ far more dramatically from individual to individual than with viatical settlements, primarily because health condition, an essential element to a viatication, is not necessarily a critical factor in a life settlement.
Life insurers brought tort suit against viatical settlement companies and their court-appointed receiver, alleging that the defendants knowingly purchased and/or serviced life insurance policies from HIV-positive individuals who submitted fraudulent insurance applications stating that they had never been diagnosed or treated for AIDS or any other blood or immune system disorder.
First, the payments must be made by a viatical settlement provider.
In order to make their medical records available to third parties in the viatical settlement process, insureds must authorize their physicians and other health care givers, in writing, to release their private medical records.
If the minimum price floor is set below the actuarially fair price, then the price regulation will have no effect on market outcomes in a perfectly competitive market as price competition among viatical settlement firms will ensure that the market price is already higher than the minimum price.
Ray, Comment, The Viatical Settlement Industry: Betting on People's Lives Is Certainly No "Exacta," 17 J.
Furthermore, individuals qualifying for this tax-free benefit must use a viatical settlement provider who is licensed in the state where they live.
There are two basic roles for viatical settlement companies: providers, who buy the policies themselves and hold them as the named beneficiary thereunder, and brokers, who act as intermediaries between viatical settlement providers and viators by performing underwriting functions, and negotiating a fee to be paid by the viatical settlement provider.
The Internal Revenue Service has taken a more enlightened position in relation to the second possible event where an insured assigns his life insurance contract to the insurance company (as contrasted with the above PLR in which the sale was to a Viatical settlement company) that issued the policy and the accelerated death benefit is paid pursuant to a contract term.
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.
Oftentimes confused with viatical settlements, life settlements are the sale of a life insurance policy by a policy owner for less than the face value but more than the cash surrender value of the policy to a third-party investor.