Life 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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

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.

Dictionary of Financial Terms. Copyright © 2008 Lightbulb Press, Inc. All Rights Reserved.
References in periodicals archive ?
Masry, Senior Settlement Consultant at Millennium Settlement Consulting in Van Nuys, California.
The portfolio, including the debit cards, takes the work of four full-time staff to manage: one product manager, one new account processor and two senior settlement processes.
Senior settlement is like reconditioning an engine whose mission has become obsolete but whose efficiency is without fault.
The TEP market differs from the Senior Settlement or Viatical market which primarily focuses on the term insurance policies, having limited life expectancies through age or health.
* A UK Senior Settlement or Viatical policy has a fixed payout in the form of a death benefit, but the payout date is dependent on how long the insured lives.
With his legal costs of pounds 250,000 and the pounds 50,000 Mary Senior settlement, that will take the cost to pounds 1million.
Now, anyone over the age of 70 with a life insurance policy who is in serious need of money can qualify for what is called a "senior settlement," an increasingly popular option.
Topping the list, observers say, is an understanding of the pros and cons of a senior settlement. Advisors note that most life insurance policies under consideration for sale should be retained because of the tax advantages and estate liquidity benefits.
Life settlements are also variously referred to as "senior settlements," "high net worth settlements," and "high net worth transactions." In contrast, the term "viatical settlement" is used to describe the sale of life insurance contract when the insured is terminally or chronically ill and expected to die within two years (see below).
Life settlements, also known as senior settlements, do not involve a terminal illness (less than 24-month life expectancy) but a determinable life expectancy based upon the insured's age, health and lifestyle.
Life settlements, which also are known as lifetime settlements or senior settlements, involve selling an in-force life insurance policy at a discount of the face value to a buyer interested in taking over the policy as an investment.
This is particularly true when that subject is an emerging area in the business, which life settlements (or senior settlements, as they are also known) most definitely are.

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