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 ?
* Sell a portion of the policy through life settlement. He could sell $500,000 of the death benefit, perhaps through his favorite charity.
A session regarding branding and marketing in the life settlement industry, featuring strategies for cost-effective business promotion;
As is the case with many ideas of the future, life settlements have been met with ignorance, confusion, resistance, and even hostility (as were universal and variable life not so very long ago)!
The chart "Fiduciary Duties in the Life Settlement Process" shows who owes a fiduciary duty to whom in the life settlement process.
It is imperative that anyone owning or controlling a life insurance policy they think would be suitable for a life settlement "shops it," meaning getting at least three quotes.
To assist you, your clients and their advisors to calculate the tax consequences of a life settlement transaction, we have created a worksheet that can be downloaded here.
To illustrate best practices for agents, this experienced advisor highlights of a life settlement transaction he spearheaded for a 77-year-old retired medical professional.
The STOLI phenomena is linked to another obstacle that might inhibit widespread expansion of the life settlement industry: reputational risk.
There are many alternatives to a life settlement, including gifting the policy to a loved one or borrowing to pay premiums.
For life insurance agents and financial advisers, LifePASS offers a new way to prequalify clients before committing to a life settlement and clearly illustrate the value prospective clients have hidden in their life insurance policy.
Based on our analysis of the life settlement market, we estimate that:
Thanks to the demise of STOLI and new estate tax laws, the future looks bright for the life settlement industry.