viatical 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.

viatical settlement

The purchase of a terminally ill person's life insurance policy for a certain percentage of the policy's face value. The amount paid depends on the size of the policy and the length of time the policyholder is expected to live. The company that purchases the policy begins paying the premiums at the time of purchase and collects the death benefits when the insured dies.

Viatical settlement.

Technically speaking, a viatical settlement occurs when a life insurance policy is sold for cash to a third party before the original owner dies.

Most viatical settlements involve terminally ill people with life expectancies of less than two years who choose to sell their life insurance policies to raise money for their medical care.

In a viatical settlement, the third party pays the former policy owner an amount that is typically more than the surrender value of the policy, but less than the death benefit. When the insured person dies, the new policy owner collects the death benefit and makes a profit on the difference between the amount paid to the insured and the amount paid on the claim.

Some businesses specialize in viatical settlements, and may resell them as investments, arrangements that are regulated by the state in which the policies are sold.

Because viaticals are controversial, more complex than they seem, and have been aggressively and sometimes misleadingly marketed, both people considering selling their policies and people considering investing in them are advised to proceed with caution.

References in periodicals archive ?
M., 2000, The Viatical Settlement Industry: Betting on People's Lives Is Certainly No Exacta, Journal of Contemporary Health Law and Policy, 17: 321-347.
Viatical settlements allow insured policy owners to sell their insurance death benefits to investors.
(187) As such, it is proper for insurance companies to lobby Congress and state legislatures to pass legislation concerning SPIN-Life contracts and to treat them as distinct from insurance and even viatical or life settlements.
The typical benefits of a viatical settlement to a policy owner/insured include:
In some states, the term "viatical settlement" may include both a life settlement and a viatical settlement; in other states both may be referred to as a "life settlement." (13) In many states, the statute dealing with life settlements will simply be titled "Viatical Settlements Act." (14) The first drafting note to the recent amendments to the NAIC's Viatical Settlements Model Act anticipates this confusion, and deals with it by stating that "In implementing this model act, states may elect to use terminology referring to life settlements rather than viatical settlements."
Before life insurance companies offered accelerated benefits, entrepreneurs formed viatical settlement companies to provide accelerated payments to insureds.
Many states have adopted laws and regulations covering life settlement transactions and viatical settlements.
Contrary to the early days when viatical settlements were primarily utilized by the terminally ill, today many affluent seniors may be eligible to sell their life insurance benefits pursuant to what is now known as a senior or a life settlement.
Salesman, a salesperson with Viatical Financial Network.
Kelco, a viatical, encouraged AIDS patients to buy small life insurance policies that did not require medical tests, then sold them to investors.
The main business of Trade Partners is buying, holding and transferring life insurance policies on persons with limited life expectancies, referred to as viatical settlement contracts.