Life settlements have become a popular option for seniors who are looking to cash in on their life insurance policies. However, it is important to understand the key terms and concepts involved in a life settlement to make an informed decision. Here are some of the most important terms in life settlements:
Life Settlement
- A life settlement is the sale of an existing life insurance policy to a third-party investor for more than its cash surrender value but less than its death benefit.
- Life settlements provide an alternative to surrendering a policy for its cash value or letting it lapse.
- Life settlements are typically used by seniors who are no longer in need of their life insurance coverage.
Viatical Settlement
- A viatical settlement is a type of life settlement that involves the sale of a life insurance policy by a policyholder who is terminally ill.
- Viatical settlements offer a way for policyholders to receive a lump sum of cash to pay for medical expenses or other needs.
- Viatical settlements are generally more attractive to investors because the death benefit will be paid sooner than in a typical life settlement.
Policyholder
- The policyholder is the individual who owns the life insurance policy being sold in a life settlement.
- The policyholder is the person who receives the lump sum payment in exchange for the policy.
Investor
- The investor is the third-party who purchases the life insurance policy in a life settlement.
- The investor becomes the new owner of the policy and is responsible for paying the premiums until the death of the insured.
Death Benefit
- The death benefit is the amount of money that is paid to the beneficiaries of the life insurance policy upon the death of the insured.
- The death benefit is the key factor in determining the value of a life insurance policy in a life settlement.
Cash Surrender Value
- The cash surrender value is the amount of money that the policyholder can receive if they surrender their life insurance policy to the insurance company.
- The cash surrender value is typically lower than the death benefit and may not be sufficient to meet the policyholder’s needs.
Premiums
- Premiums are the payments made by the policyholder to the insurance company to keep the life insurance policy in force.
- In a life settlement, the investor becomes responsible for paying the premiums until the death of the insured.
Underwriting
- Underwriting is the process by which the insurance company assesses the policyholder’s risk and determines the premium and coverage amount.
- In a life settlement, the underwriting process is used to determine the value of the policy and the amount that the investor is willing to pay for it.
Life Expectancy Report
- A life expectancy report is a medical evaluation that is used to estimate the remaining lifespan of the insured.
- The life expectancy report is an important factor in determining the value of the policy in a life settlement.
State Regulation
- Life settlements are regulated by the individual states, and each state has its own laws and regulations regarding life settlements.
- It is important to research the life settlement laws in your state before considering a life settlement.
In conclusion, life settlements provide an alternative to surrendering a policy for its cash value or letting it lapse. They are typically used by seniors who are no longer in need of their life insurance coverage. Understanding the key terms and concepts involved in a life settlement, such as death benefit, cash surrender value, premiums, underwriting, life expectancy report, and state regulation, is essential to making an informed decision. It is also important to consider the tax implications of a life settlement and to consult with a financial advisor or attorney.