Life Settlements and Viaticals

In recent years a new, secondary market for life insurance policies has emerged called Life Settlements.

Life Settlements is the process where a policy owner sells the rights to their insurance policy to a secondary market (typically investors). The policy owner recieves an upfront amount of cash commonly in the range of 30% to 80% of the face amount of the insurance policy. In exchange they give up all rights to their insurance policy. The investors then pay the ongoing premiums for the life insurance policy and collect the proceeds or death benefit on the death of the insured.

A similiar concept is called Viaticals. Viaticals are similiar to life settlements in that the rights to the policy are transferred to investors. However with viaticals the insured's expected mortality is less than two years. When the insured has a life expectancy of greater than two years the market is called life settlements.

Life settlements and viaticals can be a great boon to people intending to lapse an insurance policy that's no longer needed. However the policy owner should note that proceeds from the settlement may be taxable in some instances (unlike a life insurance policy death benefit that is typically paid out tax free).

An example of a suitable application of life settlements would be a business insurance policy for someone that is retiring. Since the insurance is no longer needed on the retiree most businesses would simple lapse the policy. With life settlements, the business may be able to see an immediate payout of a substantial portion of the death benefit.

Partially in response to the viatical market, insurers have now started to offer Accelerated Death Benefits. Similiar to viaticals, the insurance company provide a portion of the death benefits to the policy owner while the insured is still alive. There may be additional benefits to accelerated death benefits above and beyond viaticals, insureds should carefully consider all of their options before making a final decision.

Life settlements are also referred to as life settelments, life insurance settelments, and senior life settlements.