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 ?
In viatical settlements (and in the early history of life settlement pricing), the life expectancy (9) of the insured was considered the most critical (often the only) variable used in determining the secondary market price of the policy as this represents the expected life length of the insured when the life insurance policy was sold to the third party as a life settlement (the time to payment for the investor).
Since the Salazars wanted a big percentage return but were too small for the risky real estate deals, and had too little tolerance for stock funds given the bubbles and serious market reverses of the last few years, Tom recommended they invest in a privately syndicated pool of life insurance policies in a transaction called a viatical settlement.
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.
Although anyone with access to the Internet can locate information on companies that provide viatical settlements, a client should have his or her attorney, accountant, financial planner, or a viatical settlement broker assist in the sale of the life insurance policy.
While most viatical settlement companies are legitimate, others mislead, deceive, or even defraud viatical investors.
Viatical settlements are becoming increasingly popular among seniors who require immediate cash for a wide range of needs.
Viatical settlements raise regulatory concerns under the insurance laws.
15) Therefore, the practitioner charged with assisting the personal representative must be cognizant of the Viatical settlement issues and thus make certain that the personal representative properly reports the Viatical settlements on the decedents final return.
The idea was to submit medical records that would suggest a short life expectancy, thereby justifying a higher viatical settlement.
The cap was instituted during the final stages of the legislation because Congress recognized the need to coordinate long-term care provisions with viatical settlements.
After all, viatical settlements entered the mainstream more than 20 years ago, with life settlements debuting 10 years after that.
With the NAIC's new model law criteria in place, much of the debate that preceded adoption of the revised Viatical Settlements Model Act had more to do with procedural questions.