Thanks to life settlements and viatical settlements, the living can
enjoy life a little more by turning their life insurance policies into
Life insurance settlements can
make a lot of financial sense,
particularly if you find yourself struggling to make ends meet.
If you own a life insurance policy and are either terminally ill or age
65 or older, you can sell your policy to an investor who will give you
a lump sum payment now in exchange for the death benefit when you die.
To protect its investment and keep the policy in force, the investor
will make all the premium payments for as long as you live.
A Little Background
In the late 1980s, the cash flow industry found opportunity in the AIDS
epidemic, with the terminally ill in dire need large sums of money for
their medical care and living expenses.
What resulted was a method that would allow someone to transfer
ownership of a life insurance policy to a third party, and it wasn't
long before investors were swarming to buy the policies of the
dying in what would eventually be termed viatical settlements.
Viatical settlements were seen as the ultimate win-win for both the
sick, who got a lump sum payment of cash, and the investors, who stood
to profit handsomely by the early demise of those afflicted with the
It wasn't long before this huge profit potential attracted scam artists
began marketing viatical investments as a certain path to quick wealth.
Scandal combined with the morbid nature of viatical settlements invited
a spate bad publicity, which
has plagued them ever since. And as treatment for AIDS has
improved and victims are
living longer, investor enthusiasm for viaticals has waned.
But the underlying concept – purchasing
life insurance policies at a discount – was carried into the new
millennium and rebranded as so-called life settlements, or senior
settlements and viatical settlements are essentially the same thing,
except that life settlements are aimed at senior citizens who do not
to be terminally ill.
Viatical settlements are still available, but life settlements are
exploding in their popularity with both a cash-starved aging population
and the yield hungry cash flow industry.
How Life Insurance Settlements Work
Life settlements and viatical settlements both transfer the ownership
of your life policy to a third party (the investor). The investor or
agent is also named the beneficiary of the death benefit.
You will find investors for the most common policy types, including:
- Universal life,
- Whole life,
- Term, and
- Convertible term
In general, most investors are interested in policies with a death
benefit greater than $250,000. Second to die policies are eligible as
well, but all policies must be beyond the contestability stage.
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tips for receiving the most money for your contract.
For example, say you're a 70-year-old widower with grown children and
$2 million whole life policy, with a cash (surrender) value of
$120,000. The premiums are unaffordable and you really don’t need the
policy any longer.
You find a note broker or contract buyer that offers life settlements.
You give him a copy of your policy and answer some health-related
questions. Within a few days, your contract buyer gives you a written
offer for 40 percent of the policy's face value as lump sum payment --
almost eight times what you'd get by simply cashing in the policy with
The contract buyer takes over the premiums and when you die, the
receives the $2 million from your insurance company.
The factors that
determine how much
your policy is worth are:
Type of insurance
Premiums required to maintain the policy
Current cash surrender value (if any) and outstanding policy loans
Financial strength of the insurance company
Your life expectancy
The longer you wait to sell, the more money you will be offered. And,
yes, it’s true that the sooner you die, the more profit the contract
buyer makes, though you needn’t hurry!
Selling your policy is an important financial decision. Unlike shopping
around for a new policy, selling one puts all the responsibility
squarely on your shoulders.
Life settlements and viatical settlements are both relatively new and
lightly regulated. If you are considering the sale of your policy, you
will want to take great care to find a reputable, professional contract
buyer or note broker to assist you with your transaction. You also may
want to consult an estate planner or attorney, since you could be
liable for taxes on your settlement.
Again, there's no rush. Tthe value of life insurance settlements always
larger with the passage of time!