Life settlement

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Related to Life settlement: viatical

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.

Life settlement.

If you are over age 70 and no longer need your life insurance policy, you may be able to sell it to a third party in what's called a life settlement.

You're paid a cash amount less than the death benefit but typically greater than the surrender value, and the party that buys your policy will get the death benefit when you die.

Similar to viatical settlements, in which terminally ill people may sell their life insurance policies, generally to use the cash to pay for healthcare, life settlements let you forgo a death benefit and use the cash in your policy while you're alive.

However, life settlements are for people who are healthy and expect to live more than a couple of years. Specific rules for life settlements are set by the state where a specific transaction takes place.

Some businesses specialize in buying life insurance policies from older or terminally ill individuals and reselling them as investments.

However, because these insurance arrangements are controversial and most investors understand them poorly, both people considering selling policies and people considering investing in them are advised to proceed with caution. For example, there may be complex estate-planning and tax consequences to life settlements.

References in periodicals archive ?
Read The Life Settlement Market Is Heating Up on ThinkAdvisor.
Related: Eye on 7 of the most common life settlement situations
As a result, every effort should be made to find a place close to home for a life insurance policy rather than selling it on the life settlement market.
But by the early 2000s, it became clear that there was a significant difference between the mortality tables that insurers used to price policies and the life expectancy reports that were used by the life settlement industry.
Provider companies, the most heavily regulated entities in the life settlement industry, have other options, primarily because their employees are covered by the company's license.
This life expectancy difference is important because it changes the often-held perception that a life settlement buyer is "betting" on a policyholder's life.
A reconciliation for the policy owner showing the difference between the gross offer for the purchase of the life insurance policy and the net amount to be paid to the owner, including a listing of all fees and compensation to the life settlement broker and others.
The undecided question under securities laws is whether the sale of an entire life insurance policy (even if the policy is not a variable life insurance policy, which is unquestionably a security) to a single investor without fractionalization is a security, which may very well be the next case that the SEC brings in the investment side of the life settlement business.
A proposal before the National Association of Insurance Commissioners would bar life settlement transactions until a policy had been in effect for five years.
A company accepting the life settlement company's offer relinquishes ownership and beneficial interest in the policy in exchange for a cash payment.
For CPAs in public practice, marketing and promoting life settlements can be easy; many accountants have clients that fit the life settlement eligibility profile.
Many life settlement providers are backed (funded) by well-known financial institutions that view life insurance as an asset in a diversified portfolio.