Settlement Group

Frequently Asked Questions

A Life Settlement is the sale of a life insurance policy to a third party for more than its cash surrender value but less than its net death benefit. A Life Settlement refers 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 is terminally or chronically ill or not. At least one or more states uses the term “Life Settlements” to refer to all transactions, including ones in which the insured is terminally or chronically ill.

A Viatical Life Settlement is the sale of a life insurance policy to a third party 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 months or less. 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 or more states uses the term “Life Settlements” to refer to all transactions, including ones in which the insured is terminally or chronically ill.

Viatical and Life Settlements are regulated by state Departments of I insurance (DOI). Most states have enacted statutes addressing the sale of life insurance policies to a third party involving both Viaticals (terminal illness) and Life settlements. Rules may vary from state to state regarding Viaticals and life settlements; check with your state regulations or consult with your provider company and or advisor on the differences.

As of this writing, there only seven states that do not regulate either transaction.
Providers and your advisor must have the appropriate license to conduct life settlement and viatical transactions.

A secondary market is one where a product may be bought and sold after its initial offering. For example; the life policy you presently own was purchased directly from the life insurance carrier, the originator of the product. A secondary market exists whereby you can sell that life insurance 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.

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, most common are Universal Life. But variable life, Survivorship life, Whole Life, and Term Life may also be sold.

No, there are no restrictions on use of the funds – the money is yours to spend as you like.

The proceeds may or may not be taxable. They may be tax free up to the amount you have paid in premiums during the life of the policy. Whether they are taxable or not depends on your specific situation. Please consult your tax advisor for additional information. The advice of a tax professional is highly recommended.

  • The life insurance policy is unwanted or no longer needed
  • To pay for healthcare costs
  • Premium payments have become unaffordable
  • Considering lapse or surrender of the 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 name a new beneficiary of the policy who will collect the proceeds upon the insured’s passing.