A Viatical and/or Life Settlement is the sale of an existing life insurance policy for more than its cash surrender value but for less than the policy’s net death benefit. The industry generally uses the term “Viatical Settlement” to refer to a transaction involving a terminally or chronically ill insured and “Life Settlement” to refer to a transaction involving an insured who is not terminally or chronically ill. However, as defined in the laws and regulations of each state, these terms are not consistently used in this manner. For example, some states use the term “Viatical Settlements” to refer to any sale of a life insurance policy, regardless of whether the insured is terminally or chronically ill or not. And at least one state uses the term “Life Settlements” to mean the act of selling a life insurance policy, including ones in which the insured is terminally or chronically ill

Most types of life insurance policies and products may qualify, including Universal Life, Whole Life, Term Life, Variable Life, and Joint Survivorship.

The tax treatment of proceeds received via a life settlement will vary case by case, and as such we advise you and your clients to seek consultation from a tax professional for answers to your questions regarding taxation of life settlements.

Done right, transacting a life settlement can be quite simple:

1. The policy owner decides to sell their policy and/or entertain offers.

2. The advisor & LifeRoc work together to prepare the case for market.

3. LifeRoc accesses its large network of policy buyers to produce policy offers.

4. The policy owner accepts the most attractive offer and then completes closing documents.

5. The carrier completes the official recording of the new policy ownership and beneficiary details.

6. The policy owner receives its cash payout at time of Closing.

Life Settlement Providers act as a clearing house between advisors, policy owners, and life settlement funders. Life Settlement Providers oversee the transactional documents, escrow set up, due diligence, and compliance for each life settlement. The top Life Settlement Providers work with life settlement brokers to source transactions that fit the market’s appetite which is comprised of numerous institutional funds. Life Settlement Providers must be licensed to transact policies in the state where the policy owner resides.

Viatical Settlement Providers assist policy owners with selling their Life Insurance policies for a lump sum of cash payment now, rather than the policy owner and beneficiaries delaying cash payment based on when the insured passes away.

Viatical/Life Settlements are generally regulated by each applicable state Insurance Department. Some states have enacted statutes addressing the sale of life insurance policies insuring non-terminally or chronically ill individuals, while some have laws that only regulate the sale of life insurance policies insuring terminally or chronically ill individuals, and others do not regulate the transaction at all.  Most states who regulate settlements require that the Brokers and Providers each be to be licensed by the state’s department of insurance. Please contact each state directly for all specific rules and regulations.