Life settlement

A life settlement or viatical settlement (from Latin viaticum, something received before death)^[1] is the legal sale of an existing life insurance policy (typically of seniors) for more than its cash surrender value, but less than its net death benefit,^[2] to a third party investor.^[3] Such a sale provides the policy owner with a lump sum.^[4] The third party becomes the new owner of the policy, pays the monthly premiums, and receives the full benefit of the policy when the insured dies.^[4]

The primary reason the policyowner sells is because they can no longer afford the ongoing premiums, they no longer need or want the policy, to fund long-term care, increased medical costs, or they need money for other expenses.^[5][6] Viatical settlements are ordinarily sold by, or on behalf of, an insured who is terminally or chronically ill.^[4][7] On average, the policyowner receives three to five times more than the surrender value for the policy.^[8][9]

In a retained death benefit transaction, policyowners receive cash payments and their beneficiaries also receive a payment after the insured dies. After the transaction has closed, there are no future premium obligations^[10][11]

Term, permanent, or whole life insurance policies qualify for life settlement. Most commonly, universal life insurance policies are sold.^[12][13][14] Policyowners are generally 65 or older and own a life insurance policy worth $100,000 or more.^[14]

As medical advancements improved the lives of those persons living with terminal or chronic illnesses, the life settlement industry emerged.^[4][15]