A Life Settlement is the sale of a life insurance policy generating proceeds that greatly exceeds the cash surrender value in the policy. Policy ownership is changed and the new owner assumes premium payments. In many states the sale of an existing life insurance policy for an amount less than the stated death benefit is considered to be a life settlement.
A Viatical Settlement has been traditionally defined as the sale of an existing life insurance policy for an amount less than the stated death benefit involving an insured with a life expectancy of twenty four months or less (Terminally Ill). However, some states also use the legal term Viatical Settlement to describe a traditional Life Settlement.
Life Settlement Broker
A Life Settlement Broker is a person or company who represents a life insurance policy owner, and on behalf of the policy owner, identifies and negotiates sales contract terms with interested life settlement investors, life settlement providers, and life settlement funders. A Life Settlement Broker will act in the interest of its clients and does not represent any life settlement buyer. Life Settlement Brokers are directly compensated from the life settlement buyer upon completion of the transaction.
Life Settlement Provider
A Life Settlement Provider is a company or person who effectuates the purchase of life insurance policies from insureds and policy owners on behalf of the ultimate buyer. Furthermore, a Life Settlement Provider is typically a licensed buyer of life insurance policies in the applicable regulatory jurisdiction.
Life Settlement Agent
A Life Settlement Agent is an individual who directly advises and assits policy owners with the life settlement process. A Life Settlement Agent will typically work with a professional Life Settlement Broker.
Life Settlement Financing Entity
A Life Settlement Financing Entity is a company who is in the business of providing funds to facilitate the purchase of one or more life insurance policies and who has an agreement in place to purchase policies through a licensed Life Settlement Provider.
Life Settlement Escrow Agent
In every life settlement transaction, an Escrow Agent is hired on behalf of both the seller and buyer to establish a level of trust, ensuring all terms of the purchase agreement are met. This is typically an independent entity such as a bank, CPA or specialty escrow company, who holds and processes all documents and funds in the transaction pursuant to instructions.
Life Insurance Settlement Association
Founded in 1995, LISA is the most widely recognized trade association representing the Life Settlement industry, LISA participates in educational, legislative and regulatory matters in all 50 states, including Puerto Rico and Canada. Its mission is to promote the development, integrity and reputation of the life settlement industry and to promote a competitive market for the people it serves.
Life Expectancy is an actuarial gauge for how long a particular individual is expected to live based on their age and health. Generally, the older someone is and the more health problems he/she has, the lower their life expectancy will be.
Accelerated Death Benefit
An Accelerated Death Benefit is a life insurance policy feature or “Rider” which could allow the insured/owner of the life insurance policy to receive a portion of the death benefit prior to the death of the insured. Most insurance carriers have specific guidelines to determine if a policy will qualify for an Accelerated Death Benefit pay out. Sometimes an ADB could be an alternative to a Life Settlement or Viatical Settlement.
An individual is deemed to be Terminally Ill if he/she has an illness or condition which could reasonably lead to death in twenty four months or less.
The Owner in a life settlement transaction is the individual or entity who is listed as the policy owner by the carrier or certificate holder of the life insurance policy to be sold.
The insured is the person covered by the policy and whose death will trigger a death benefit pay out by the life insurance carrier.
Term Conversion Life Settlements
Many term policies contain a provision allowing the term life insurance policy to be converted to a permanent product, such as Universal Life. If a product can be converted to a UL product the client may be able to sell his/her term policy in the life settlement market.
Premium financing is the utilization of borrowing power to purchase a needed life insurance policy.
Verification of Coverage (VOC)
A VOC is a piece of documentation obtained from the life insurance carrier by the Life Settlement Broker. This document is used to establish policy values, dates, and provisions for all parties to review.
Sales Contract/Purchase Agreement
This is a written agreement entered into by the life settlement purchaser (Provider) and the life settlement seller (Settlor/Viator). This legally binding document will lay out the terms of the life settlement.
Life Settlement/Viatical Settlement License
Many states require a special license to operate as a Life Settlement Broker, Life Settlement Provider, or Life Settlement Agent. Common requirements are: a life insurance license, a background check, continuing education, and state reporting.