Wherever there are legal agreements and financial transactions, there are regulations. It’s no different with life settlements, and understandably so. A life insurance policy is a valuable asset, and the decision to exchange an existing policy for a lump sum of cash — a transaction known as a life settlement or a viatical settlement — should not be taken lightly. These transactions can be complex and confusing for many, and the ramifications can be far-reaching for policyholders and their designated beneficiaries. To help protect all parties, most states have enacted regulations governing life settlements.
First, a Few Basics
Life settlement state regulations are designed to aid everyone involved in these transactions, but it’s still important to have a basic understanding of what the process entails. A life settlement involves the sale of a life insurance policy to a third party, known as a life settlement provider. These transactions often involve a broker whose objective is to get the best offer for the policyholder. The provider pays a lump sum of cash for the policy, takes over premium payments, and becomes the beneficiary. An individual may be interested in selling his or her policy for a number of reasons, including but not limited to the following:
- Retirement income
- Paying premiums no longer makes sense
- Beneficiaries are no longer financially dependent on the death benefit
- A lump sum can help pay healthcare costs
Most types of life insurance policies can qualify for a life settlement, even if there is little or no surrender cash value. Even term life policies can qualify. A number of factors determine how much a life settlement provider will offer, including the death benefit amount, the type of policy, the amount of the premium payments, and the insured’s age and medical condition.
The Mystifying Mix of Regulations
More than a century ago, in 1911, the U.S. Supreme Court ruled that a life policy is in effect personal property and thus that its owner could sell it. By 2018, all but five states and the District of Columbia had regulations in place regarding life settlements and/or viatical settlements to protect both consumers and investors. Regulations cover aspects such as:
- Transparency and disclosure of information such as risks and financial considerations
- Minimum amount of time for which a policy must be held from its issuance until it can be sold
- Licensing of brokers and/or providers
Life settlement regulations vary from state to state. Most states also have laws regarding investing in life settlements, and the U.S. Securities and Exchange Commission also has jurisdiction over some life settlement investments that are considered securities.
How IMS Settlements Can Help
Life insurance policies are valuable assets, and a receiving a lump sum of cash for that asset through a life settlement often makes sense. IMS Settlements has the expertise needed to help insurance agents, financial professionals and policyholders navigate the tangled web of life settlement state regulations and complete these complex transactions. To determine whether and how regulations apply in your state, contact us today. We also offer free evaluations.