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 ?
The sticky residue from the days of viatical settlements and associations (real or imagined) with stranger-owned life insurance has dogged the life settlement business for years.
(91) The selling of a life insurance policy by a terminally ill policyholder on the secondary market became known as a "viatical settlement." (92) Viatical settlement transactions, however, are not insurance contracts, and as such, are not part of the "business of insurance." (93) For the purposes of the Securities Act, the Securities and Exchange Act, and federal securities regulation, viatical settlements in certain instances qualify as investment contracts, and therefore as securities.
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.
The Arkansas Securities Department is now regulating viatical contracts because of a rash of abuse in the industry.
Another tool for defrauding older policyholders is the viatical settlement--the purchase of a life insurance policy by a third party from its owner, the viator, who is usually terminally ill and sells the policy to raise cash for medical or other expenses.
The major risk with "investing" in viaticals or purchasing a fractional interest in a viatical trust agreement is that the insurance policy may not exist.
of ads Alcohol 41 45 HIV drugs / Viaticals 39.67 35 All travel 37 + Clothing / jewelry 29.67 23 Websites 29.33 33 Cosmetics / vits.
They can include, but are not limited to: investments in real estate, viaticals, portfolios, stocks, business investments and general get-rich schemes.
Viaticals were particularly appropriate for People With AIDS (PWAs) because they had a life-limiting illness, which, at the time, had a very predictable term.
(45) See Herron, supra note 23, at 960-64 (explaining that because "of this concentration of companies, the competitiveness of the market for viaticals varies naturally and substantially from state to state").