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 ?
3) Although New York has not yet implemented regulations governing life settlements, at least twenty five other states regulate both viatical settlements and life settlements.
21, 2002 (applying same analysis and stating that a license is only required for viatical settlement companies and brokers).
b) In connection with a viatical settlement investment, pursuant to s.
c) On residents of this state in connection with a viatical settlement contract or viatical settlement investment.
The forms include, but are not limited to, a power of attorney, a release of medical information form, a suitability questionnaire, a disclosure document, or any addendum, schedule, or amendment to a viatical settlement contract considered necessary by a provider to effectuate a viatical settlement transaction.
7) "Related provider trust" means a titling trust or other trust established by a licensed viatical settlement provider or financing entity for the sole purpose of holding the ownership or beneficial interest in purchased policies in connection with a financing transaction.
8) "Special purpose entity" means an entity established by a licensed viatical settlement provider or by a financing entity, which may be a corporation, partnership, trust, limited liability company, or other similar entity formed solely to provide, either directly or indirectly, access to institutional capital markets to a viatical settlement provider or financing entity.
Also, to qualify for the favorable tax treatment, the life insurance or viatical settlement contract may not ".
In addition to the limitations on the use of the proceeds, the terms of the contract giving rise to the payments to the chronically ill individual must meet specified requirements designed to protect consumers from seeking accelerated payments or viatical settlements without first having the information necessary to make an informed decision and preserving the insured's right to rescind the arrangement within 30 days.
Viatical settlements must comply with additional requirements for the proceeds of the sale or assignment in order to be excluded from income tax.
Second, the provider must either be licensed to provide viatical settlements under the laws of the state in which the insured resides, or if the insured's state does not require licensing of viatical settlement providers, the provider must meet the requirements specified in the Internal Revenue Code.
With respect to chronically ill insureds, the provider must meet requirements similar to those contained in Sections 8 and 9 of the Viatical Settlements Model Act along with the standards of the National Association of Insurance Commissioners, if any exist at the time of the settlement, for evaluating the reasonableness of the amounts paid by the provider in connection with viatical settlements for chronically ill individuals.