Life Settlements &
Viatical Settlements

Money For The Living

Thanks to life settlements and viatical settlements, the living can enjoy life a little more by turning their life insurance policies into immediate cash.

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 terrible disease.

It wasn't long before this huge profit potential attracted scam artists who 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. Life settlements and viatical settlements are essentially the same thing, except that life settlements are aimed at senior citizens who do not have 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 its 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.

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 your insurer.

The contract buyer takes over the premiums and when you die, the investor 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!

Seller Beware

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 grows larger with the passage of time!