In the present day, the life settlements are a more common choice for older individuals in need of some cash material against their life insurance plan. At the same time, it is necessary to understand the key terms and concepts that will be negotiated to be able to make an informed decision in the life settlement. Here are some of the key terms that appear in the list of 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 are an option that is offered as an alternative to the policyholder by the policy issuer. They can be either surrendered in return for cash or allowed to lapse.
- Seniors are the primary group in which insurance policies are commonly used due to their no longer needing this coverage, except for the few minutes when they have a need for their insurance coverages.
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 provide an option for policyholders to quickly obtain a large money amount that helps the treatment or other spending needs.
- Investors are typically more interested in viatical settlements as they receive payment of the death benefit quicker than a regular life settlement.
Policyholder
- The policyholder is the individual who owns the life insurance policy being sold in a life settlement.
- The policyholder is the one who receives a one-time cash payment to hand over the policy.
Investor
- An investor, typically a third party, is the one who purchases the life insurance policy in a life settlement.
- The investor who is the new owner of a policy and is responsible to pay the premiums until the insured’s death.
Death Benefit
- The death benefit is the amount of money that is given to the beneficiaries of the life insurance policy after the insured’s death.
- The death benefit is the main factor in the evaluation of the value of a life insurance policy when applied for a life settlement.
Cash Surrender Value
- The cash surrender value is the money that the insured can get if the policyholder gives up his life insurance policy to the insurance company.
- The cash surrender value probably is less than the death benefit and might be insufficient to help pay expenses of the policyholder.
Premiums
- Premiums are the payments that a policyholder makes to the insurance company that will provide the life insurance policy for the policyholder.
- There is a life settlement scenario where the investor has to pay the premiums until the death of the insured person.
Underwriting
- The underwriting is the process by which the insurance company assesses the policyholder’s risk and then determines the premium and coverage amount.
- In a life settlement, the underwriting process is drawn upon to evaluate the policy and the amount that the buyer is willing to pay.
Life Expectancy Report
- A life expectancy report is a review by a medical practitioner to project the remaining lifespan of the insured.
- The life expectancy report is a crucial determinant of the life settlement’s value.
State Regulation
- Life settlements are governed by the states individually, each state having its own separate laws and regulations on the matter.
- It is quite important for any individual to understand the life settlement laws of her/his own state before she/he can opt for a life settlement.
By and large, life settlements offer another choice to cash the policy in or let it go. They are commonly used by old people who are not required to get life insurance. The definition of the key matters and the idea of the life settlement, for example, death benefit, cash surrender value, premiums, underwriting, life expectancy report, and state regulation, should be clear in order to make a decision on the project. It is also relevant to be attentive to the tax consequent of the life settlement and to have the help of a financial advisor or a lawyer.