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Life Settlement FAQ
What is a Viatical
and/or Life Settlement?
Does my state regulate Viatical
and/or Life Settlements?
How much money will I get
if I sell my life insurance policy?
What types of life insurance
policies can be sold?
After I sell my policy, are
there any restrictions on how I can use the money?
Are the proceeds of a Viatical/Life
Settlement taxable?
What are some of the reasons
why I might consider the sale of my policy?
What happens to the policy
after I sell it?
What is a Life Settlement
Provider?
What
is a Viatical and/or Life Settlement?
A Viatical and/or Life Settlement is the sale to a third party of an existing life insurance policy for more than its cash surrender value but less than its net death benefit. The industry generally uses the term “Viatical Settlement” to refer to a transaction involving a terminally or chronically ill insured and “Life Settlement” to refer to a transaction involving an insured who is not terminally or chronically ill and is generally over the age of sixty-five (65). However, as defined in the laws and regulations of each state, these terms are not consistently used in this manner. For example, some states use the term “Viatical Settlements” to refer to any sale of a life insurance policy, regardless of whether the insured is terminally or chronically ill or not. And at least one state uses the term “Life Settlements” to mean the act of selling a life insurance policy, including ones in which the insured is terminally or chronically ill.
Does
my state regulate Viatical and/or Life Settlements?
Viatical/Life Settlements are regulated by state Insurance Departments. Some states have enacted statutes addressing the sale of life insurance policies insuring non-terminally or chronically ill individuals and some only laws that only regulate the sale of life insurance policies insuring terminally or chronically ill individuals and others do not regulate the transaction at all. Of those states that regulate the transaction, most require both the Viatical/Life Settlement Broker (facilitator of the transaction) and Viatical/Life Settlement Provider (purchaser of the policy) to be licensed. Please call for state specific regulations.
How much money will
I get if I sell my life insurance policy?
The value of a life insurance policy is determined by a number of factors,
including, but not limited to, the age and medical condition of the insured,
type of insurance policy, rating of the issuing insurance company and
amount of premium payments to keep the life insurance policy in force.
What types of life
insurance policies can be sold?
Most types of life insurance policies can qualify, including Universal
Life, Whole Life, Term Life, Variable Life, and Joint Survivorship.
After I sell my policy,
are there any restrictions on how I can use the money?
No, there are no restrictions on use of the funds – the money is
yours to spend as you like.
Are the proceeds
of a Viatical/Life Settlement taxable?
The proceeds are tax-free up to the amount you have paid in premiums during
the life of the policy. Whether or not and how the balance of the proceeds
will be taxed depends on your specific situation. Please consult your
tax advisor for additional information.
What are some of the reasons why I might consider the sale of my policy?
- The policy is no longer needed or wanted
- To pay for healthcare costs
- Premium payments have become unaffordable
- Considering lapsing or surrendering a policy
- Change in estate planning
needs
What
happens to the policy after I sell it?
All rights and obligations of the policy are transferred to the new owner.
You will no longer be responsible for making premium payments on the policy,
the new owner will. The new owner will name a new beneficiary of the policy
who will collect the proceeds upon the insured’s passing.
What
is a Life Settlement Provider?
A life
settlement provider is the purchaser in a life settlement transaction and is
responsible for paying the client a cash sum greater than the policy's cash
surrender value. The top life settlement providers in the industry work with
life settlement brokers to fund many transactions each year and hold the seller's
policy in a confidential asset portfolio have in-house compliance departments to
carefully review life settlement transactions. Most importantly, they are backed
by institutional funds. Life settlement providers must be licensed to buy policies
in the state where the policy owner resides.
