Definition of Life Settlements
Life settlements involve a business transaction where a policyholder sells their life insurance policy to a third party for an immediate payout. The amount received from this sale is usually less than the death benefit of the policy but more than the cash surrender value. Through this transaction, the purchaser becomes the new beneficiary of the policy and assumes responsibility for paying future premiums.
Key Points
Parties Involved: The transaction typically involves the original policyholder, a life settlement provider, and sometimes a broker.
Process: The life settlement process entails assessing the value of the policy, negotiating the sale price and terms, and transferring the policy ownership to the purchaser.
Eligibility: Eligibility for life settlements may include factors such as the age and health of the insured, policy type, and premiums.
Compensation: The compensation received is less than the policy’s death benefit; however, it should exceed the policy’s cash surrender value.
Legal Aspects
- Life settlements are regulated, so ensure conformance to local laws and regulations.
- Policies outlined by the Life Insurance Settlement Association (LISA) for best practices and the Viatical Settlements Model Act by the NAIC may also provide guidance.
