Viatical Settlement or Life Settlement

Some people who own life insurance policies may no longer wish to make premium payments, but realize that the policy may be worth more than meets the eye. This part of life insurance industry, called life settlement, is often thought of as kind of creepy. I can't disagree, but this is all legal in most states but there is probably room for unethical activity.
 
A life settlement generally refers to the sale of a life insurance policy by a policy owner for less than the face value of the policy to third party investors. The third party investor(s) plans to profit at death of the insured by collecting more in death benefits that were paid out (e.g., the purchase price, the transactions costs, and premiums).
 
A "viatical settlement" is the same as a life settlement except the insured is chronically or terminally ill (as defined by the IRS Code). There are many states with laws governing these transactions.
 
If you want additional information by contacting their state insurance departments; or going to any of the following websites: FINRA, SEC, NASAA, Quatloos, and ACLI and searching under "viatical" or "life settlements."
 
Typical criteria for the owner of a life insurance policy to become an eligible candidate for a life settlement transaction would include:

• Policy holders age 70 and older (ages as low as 55 are possible)
• $50,000 minimum face amount
• Policy active minimum of two years
• Low cash surrender value
• Premiums less than 8% per annum
• Insurance Policy Types
  • Universal Life
  • Term (if convertible)
  • Whole Life
  • Variable Life
  • Survivorship (any type)
  • Adjustable Life
  • Joint First to Die

Here are three typical examples of the characteristics of a Life Settlement Transaction:
Universal Life Insurance

• • Male Age: 79
  • Policy Face Amount: $3.5 Million
  • Cash Value: $185,000
  • Life Settlement Payment: $970,000

• Universal Life Insurance
  • Female Age: 86
  • Policy Face Amount: $1 Million
  • Cash Value: $45,000
  • Life Settlement Payment: $547,000

• Whole Life Insurance
  • Male Age: 75
  • Policy Face Amount: $1.5 Million
  • Cash Value: $72,000
  • Life Settlement Payment: $455,000

Normally you could only surrender the policy for the cash value ($72,000 in this case above), but the policy owner would receive $455,000 instead. When the insured person dies, the Policy Face value ($1,500,000) will go to the entity that "bought" the policy for $455,000.