What is a life settlement?
A life settlement, sometimes called a “senior settlement”, is the selling of one’s existing life insurance policy to a third party for a one time cash payment. In exchange for the one time cash payment, the third party becomes the owner and beneficiary of the policy.
What is a Viatical Settlement
“Viatical settlements” typically involve those with two years or less to live and the Viatical settlements are regulated and handled by the life insurance company itself. Life settlements, on the other hand, do not involve the insurance company. Instead, Life Settlements involve third party investors and brokers who buy the life insurance policy.
How do life settlements work?
Usually, the third party who purchases the life insurance policy is an experienced institutional investor. It’s worth emphasizing that after the sale is made, the investor who purchased the life insurance plan becomes the new beneficiary and owner of the policy. The investor who bought the policy hopes to make a profit by receiving the policy’s death benefit. Usually, the investor will purchase the policy for more than the face cash surrender value of the policy but for less than the net death benefit.
When do people usually consider a life settlement?
A life settlement is typically made by those who believe that they and their families will benefit more by taking cash now, instead of receiving the death benefit later. They also will not have to pay anymore premiums. A life settlement is also considered by those older folks who would otherwise have to surrender their policies or allow them to lapse due to financial constraints. The potential ramifications for a life settlement are huge. For example, if you receive Medicaid, then the life settlement could result in your disqualification.
Before you decide if you should take a life settlement, you should explore your options, compare rates, and speak with an elder law attorney or financial professional, such as a CPA or financial advisor. This professional should be someone who does not have a financial or other type of stake in the buying or selling of the policy involved in the life settlement. Because the ramifications of selling your life insurance policy are extreme, such as Medicaid eligibility and your listed beneficiary losing out on the net death benefit, you should proceed with caution. Speak with a professional who can clearly and exactly spell out your options.