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Selling Your Life Insurance Policy
Life settlements might seem simple, but the process of arranging
one can be confusing. What exactly is involved when someone
decides to sell their life insurance policy or “viate”?
The following is a very general account of life settlements,
because they can vary substantially from individuals and,
especially, between states. The industry is regulated on the
state level, and is not regulated at all in many states. Although
the National Association of Insurance Commissioners has proposed
regulation that would change this, there are currently no
uniform national standards. This is crucial for would-be investors
and viators alike to keep in mind, as information you find
online, for example, may not apply in your state. If you are
interested in being party to a viatical settlement, the state
insurance commissioner’s office is a good place to start your
research.
That being said, there are several active parties to any
given life settlement. The first, the viator, is the person
selling the life insurance policy. Senior citizens who have
the greatest chance of selling their policies generally are
over 65 years of age, have a calculated life expectancy of
more than two years, but less than ten years, and may have
experienced a health change that has led to their insurance
premiums increasing.
Then there is the investor, who buys the policy. The investor
is usually a life settlement company, who may then sell the
policy to an individual investor, or who may keep the policy
as an institutional investment.
Somtimes a broker is involved to help negotiate the process
of selling the policy. In some cases, there is no middleman
and the viator sells his policy directly to an investor.
The process generally begins when a terminal patient consults
a broker, with a view towards becoming a viator. The patient
gives the broker pertinent information and documents, such
as the policy and his medical records, for appraisal. If the
broker decides to take on the case and comparison shops between
investors, seeing who will offer the best purchase price.
Once the investor is chosen, the broker and investor negotiate
specific details of the settlement. The industry varies a
great deal from state to state, but even within a given state,
the terms of each settlement vary based on a number of factors,
including the seller’s age and any medical diagnoses.
During these negotiations, a potential seller will l be grilled
by the potential investor about every aspect of his medical
condition. While this may seem invasive, the purchaser must
know as much as possible about the situation in order to make
an informed decision. However, the potential seller should
not be expected to divulge other personal information, and
should also ascertain whether the company intends to distribute
his information (i.e., to marketers).
Generally speaking, however, a seller may expect to receive
20-50%, depending on life expectancy, of the life insurance
policy’s face value. It is also possible to sell only part
of the policy. In exchange, they name the investor as their
beneficiary. The investor, as the new owner of the policy,
takes over premium payments for the duration of the patient’s
life.
After all parties agree on the terms of the settlement, there
may be a short window of time between when the money is offered
and when all the papers are signed. In the interim, the agreed-upon
fee is usually placed in an escrow account, which is held
by an independent third party, for safekeeping.
There are two other caveats, one legal and one practical,
pertaining to how the money is spent. If a viator has outstanding
debt, his creditors can point out that settling those debts
takes legal priority over everything else. Also, and although
they are not required to do so, most life settlement companies
require that the current named beneficiaries of the policy
sign a waiver.
Those circumstances aside, the person who sells a life insurance
policy answers to no one but himself. No expenditures are
too serious or too frivolous, and in fact, one of the main
benefits of a life settlement is that a sudden cash infusion
can enable a person to indulge himself in ways he never has
before or take that dream vacation.
As for the investor, they assume the premium payments on
the life insurance policy for the duration of the patient’s
life. One hesitation investors may have about life settlements
it that the short duration of the patient’s life is not a
foregone conclusion. In order to be the beneficiary of the
policy, the investor must pay the premiums until the viator
passes away, even if that takes decades.
Alternatives
to life settlements
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