Life Settlement FAQs
- 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?
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.
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 have 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.
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.
Most types of life insurance policies can qualify, including Universal Life, Whole Life, Term Life, Variable Life, and Joint Survivorship.
No, there are no restrictions on use of the funds – the money is yours to spend as you like.
Please contact a tax professional to answer your questions regarding taxation of life settlements.
- 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
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.
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 and 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.