The Life Settlement Industry is a rapidly growing secondary market for the sale of in-force life insurance policies to third-party purchasers (life settlement providers) in exchange for a lump sum cash settlement.
A life insurance policy is personal property, and like any other asset (home, car, etc.), it can be bought and sold. A Life Settlement is an alternative to the surrender of, borrowing against or cancellation of a life insurance policy. The ability of the owner of an insurance policy to receive a “fair market value” lump sum cash settlement for a life insurance policy has created new financial planning opportunities for many individuals, businesses and estates.
Definition of a Life Settlement
A Life Settlement is the sale to a third-party purchaser (life settlement provider) of an in-force life insurance policy for its “fair market value,” an amount in excess of the policy’s cash surrender value, but less than its death benefit. The life settlement provider acquiring the policy ownership then becomes the beneficiary and is solely responsible for future premium payments.
Definition of a Viatical Settlement
Viatical Settlements differ from Life Settlements in that the insured must be terminally or chronically ill. The Internal Revenue Code deems a person terminally ill if he or she is certified by a physician as having an illness or physical condition that can be reasonably expected to result in death within 24 months of the date of physician certification. A chronically ill person is defined as any person, other than a terminally ill person, certified within the preceding 12-month period by a licensed health care practitioner as having limitations similar to those qualifying for long-term care.