Life settlement

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Related to Life settlements: Life Insurance Policies

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.
life settlement market has never looked brighter, fueled by demographics trends that offer enormous potential to drive growth," said Colin Devine, principal of C.
It's time to re-introduce life settlements to accountants
Additionally, life expectancy companies, now having had many more years of experience in underwriting life expectancies for life settlements, have much more data upon which to base their estimates.
Viatical and life settlements are similar in that they both involve the sale of a life insurance policy on the secondary market, but their fundamental purpose is different.
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.
In the NASD's Notice to Members for Guidance on Life Settlements 06-38, the NASD reminded firms and associated persons that life settlements involving variable insurance policies are securities transactions, and firms and associated persons involved in such transactions are subject to applicable NASD rules.
Many firms investigating life settlements mistakenly believe they are cheap assets that can return 10% to 30% annually.
A better alternative may be to investigate selling the policy through a life settlement broker.
From a business perspective, life settlements can be considered when a business is for sale or the owner is retiring.