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What is a Life Settlement?
What is a Viatical Settlement?
Does my state regulate Viatical and/or Life Settlements?
What is a secondary market?
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?
A 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. A Life Settlement to refer to a transaction involving an insured that is not terminally or chronically ill, generally over the age of sixty-five (65). However, as used 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 the sale of all life insurance policies, regardless of whether the insured in terminally or chronically ill or not. And at least one state uses the term “Life Settlements” to refer to all transactions, including ones in which the insured is terminally or chronically ill.
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What is a Viatical Settlement?
A Viatical 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 “Viactical Settlement” to refer to a transaction involving a terminally or chronically ill insured and with a life expectancy of 24-36 months. However, as used 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 the sale of all life insurance policies, regardless of whether the insured in terminally or chronically ill or not. And at least one state uses the term “Life Settlements” to refer to all transactions, including ones in which the insured is terminally or chronically ill.
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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 to ask an SGI staff member questions on states of interest.
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As secondary market is one where a produce may be bought and sold after its initial offering. For example; the life policy you own presently own was purchased from your life agent directly form the life insurance carrier, the originator of the product. This is an example of the primary market. A secondary market exists whereby you can sell that policy to someone else; this is an example of the secondary market for life insurance.
Stocks, bonds, mortgages and real estate are other examples of products that have a secondary market where they can be bought and sold.
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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.
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Most types of life insurance policies can qualify, however, the most common are Universal Life, Whole Life, and convertible Term Life.
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No, there are no restrictions on use of the funds – the money is yours to spend as you like.
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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. The advise of a tax professional is highly recoemmended.
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- The policy is no longer needed or wanted
- To pay for healthcare costs
- Premium payments have become unaffordable
- Considering lapse or surrender of the policy
- Change in estate planning needs
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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 name a new beneficiary of the policy who will collect the proceeds upon the insured’s passing.
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