Life Settlements Guide

What Are Life Insurance Settlements?

A Life settlement is a financial transaction that is entered into by a holder of a life insurance policy and a third person (generally not their insurance company) to purchase an existing life insurance policy that is no longer needed/wanted for a specified sum of money to the policy holder.

Life Settlements And Viatical Settlements

A Life settlement is also known as a 'viatical settlement' - using this method the person who purchases the life insurance policy becomes responsible for all premium payments that may come due on the policy and they also become the beneficiary of the policy. Life Settlements have opened up an entirely new financial market, a secondary market, which allows current policy holders fairer prices and more options. During the time when these settlements were not so common, policy holders had to settle for significantly less money than they do today.

History Of Life Insurance Settlements

Life settlements were once handled strictly by the insurance company who originally issued the policy and generally speaking they would basically reclaim the policy for slightly less than their cash value. Today, with the growing secondary market, many settlements are done for approximately twenty percent more than the cash value that is offered by the insurance companies. This makes a viatical settlement an attractive option for those who are interested in taking this type of risk.

Typically, life settlements are suitable only for those individuals who already have a sound financial position, especially those who have significant net worth and are over the age of sixty five. Today, there is a growing network of experts who feel that clients should be informed about these settlements and are considering mandating that financial advisors take this up as part of their overall fiduciary responsibilities.

The Life Settlement Process

In life settlement transactions there is a seller and a buyer of the policy and there is typically a transaction facilitator as well as outside vendors. Due to the complexities of these transactions, you may find that accountants, attorneys, financial planners, insurance advisors, estate planners and other financial advisors will be involved in these transactions.

Life Settlements Regulations

Forty one states including Florida have requirements and regulations in place that govern how these settlements are handled and providers must be licensed. Many providers hold policies as portfolio assets and because of this, many have in house compliance officers or departments that will review each individual transaction and ensure that transactions are customized to meet each client's particular financial situation.

Maximize The Value Of Your Life Settlement

If you are considering surrendering your life insurance policy for an immediate cash value you should carefully review all of your options. Many life settlement brokers will for a fee shop your policy to a variety of providers and help insure that your transaction goes smoothly and provide you with a number of bids. Since compensation may vary significantly you should ensure that if you determine this is the method for you that the fees are reasonable and do not impact your payout more than you anticipate.

Florida does regulate procedures, privacy, licensing, disclosure and reporting so be sure you are working with a licensed life settlement broker.

When Should You Consider A Life Settlement?

There are limited times when a life settlement may be the right thing for you to consider. If you are in any one of the following situations you may want to consider a life settlement as an option for you.

Life Settlement Considerations

If you are seventy (70) years of age or older you may be struggling to maintain monthly premium payments on your life insurance policy. If this is the case, a life settlement may relieve you of this burden.
If you are in need of long term nursing care, medical care or even expensive in home care, you may want to consider a life settlement. In these cases, you will want to find out first if your life insurance company offers any type of provision that will allow you to cash your policy out early.
If you have outlived your beneficiaries you may consider agreeing to a life settlement. This will allow you to utilize the cash from your life insurance policy while you are still living since it will not benefit your selected beneficiary.
If you are considering donating the proceeds of your life insurance policy to a charitable organization, you may want to find out if they would benefit more from the cash proceeds of a settlement versus ownership of a donated policy.
If you are considering changing your investment portfolio to an annuity, it may be beneficial to you to consider liquidating your life insurance policy at the same time. Be sure to check what the cash surrender value of the policy is before you agree to a life settlement.
If you are the owner or partner in a company and hold key-life insurance on one of your partners/co-owners when they decide to retire you may want to consider a life settlement on your key man policies - this can give you extra cash to invest in your business.
If your accountant (or tax attorney) advises you that changes in estate tax laws may negatively impact your life insurance policy you may want to consider a life settlement or cash surrender of your policy.
If you are forced to liquidate assets due to a need to file for bankruptcy and your policy does not offer a cash settlement value you may want to consider accepting a life settlement.

You Must Be The Original Life Settlement Policy Holder

It is important that you understand that typically life settlement policies must have been owned by you (the policy holder) for not less that two years. As a policy holder there are some benefits to utilizing life settlements:

they can offer cash for gifts to family members
they can provide you with funds for charitable donations
they can assist you in paying high medical expenses
for businesses they can offer payment towards company debts

Don't accept any offer that is given to you immediately without checking for better offers. Be sure to always verify you are working with a licensed and reputable firm before signing any contracts.

What You Need To Be Aware Of When Considering Life Settlements

Life settlements may have specific consequences to you in a variety of ways. Some of the more common things that may be affected by Life Settlements are:

Bankruptcy - If you have reason to file for bankruptcy, monies you receive as a result of a life settlement may be taken away from you by creditors, personal representatives, trustees or receivers in your bankruptcy or by the internal revenue service
Tax Consequences - depending on your own personal tax situation, you may incur tax consequences as a result of entering into a life settlement. If you are considering a settlement, you will want to check with your tax preparer to see what penalties or additional taxes may be incurred.
Insurance Policy Considerations - If you are entering into a life settlement and your policy covers additional family members, you may lose that coverage, your premium payments may be affected, your cash values or dividends (if provided for in your policy) may be affected, you may have a loss of benefits including conversion options, waiver of premiums and other consequences. Be sure to discuss the full consequences of a life settlement on your policy with your insurance representative.
Other Income Consequences - if you have social security income, other forms of retirement income, receive (or apply for) public assistance in any form, a life settlement may impact your ability to continue (or begin) receiving benefits. It is critical that you determine all of the financial consequences of a life settlement before you sign any contracts.

There are some other considerations to be aware of when you are considering a life settlement which include (but may not be limited to)

Other people are going to make money on your life settlement which may decrease the amount of money you are likely to receive. You have the right (and you should exercise that right) to find out who all of the people are who may (or will) receive any type of payment associate with the sale of your policy, how much they will receive and any terms associated with those payments
Policy Extras such as accidental death, future increases in death benefits and coverage for other family members may impact your settlement - you should contact your insurance company or agent to find out what provisions and riders are included with your policy and see which parts of them may be included in your settlement. Providers are often willing to pay additional premiums for riders such as future increases in death benefits. You also need to understand that if the policy you sell offers additional coverage for other family members their coverage may be lost when you sell your policy.
A life settlement is a serious financial decision for you to make. Often considering a life settlement means that you have a serious medical condition that will result in your not being able to collect the cash value of a policy at maturity. If this is your case, please be sure to consult with a trusted financial advisor to ensure you are making the best possible decision for your particular situation.

Warning Signs Your Life Settlement May Not Be As Represented

If you have agreed to sell your life insurance policy to a viatical settlement company, there are some warning signs you should watch for to make sure that the settlement is as was represented to you.

Make sure you keep accurate records of all phone conversations, correspondence and emails. When you get your contract, gather up all of your records and make sure the terms of the contract are in line with your original understanding of the agreement. A financial planner or an attorney should be considered to review this contract before you agree to sign it. Remember, Florida does allow a fifteen day 'return' period after you receive your settlement check.
If you have been told by the viatical investor that your life insurance company can do nothing to assist you with this type of transaction, don't take their word for it! Contact your insurance agent or the company and find out if they in fact offer any types of accellerated payments, loans or other options that might be available to you.
Be certain that you understand the tax implications, restrictions on potential public benefits and effects on your estate before you enter into a settlement. Florida does require that the settlement company advise you of all of these things before you enter into a contract with any company to sell your life insurance.
Don't feel like you have no choices! Not only are you free to change your mind past the cooling off period, but you should never fall prey to high pressure sales tactics. If the company is constantly calling you, sends you a contract before reviewing your medical or insurance records or if the settlement company asks for your financial information, you should contact the Florida Division of Financial Services and report the tactics.
Shop around! Not only may your life insurance company be able to offer you more money than the settlement company, but there are often companies who will pay a larger settlement to you in exchange for your policy. Know what your policy riders contain as they may have additional benefits that companies will pay larger amounts for.
Do not agree to not review other companies before settling on one. If the company you are dealing with asks for the exclusive right to your policy immediately cease communication with them. This could be a warning sign that they are not offering you the highest settlement rate that is available to you.
If you begin getting calls or letters from a settlement company that you did not originally contact regarding your life insurance policy you may want to verify with the Florida Division of Financial Services and find out if that company has had any complaints.
Do not do business with any settlement company who is not properly licensed by the Florida Division of Financial Services. Many times investors will try to convince you that they are properly licensed but cannot provide you with documentation that substantiates their claim.

Investing In Life Settlements

If you are considering an investment in life settlements or viatical settlements, there are some things you should consider.

Research Your Life Settlement

First and foremost you will want to make sure you thoroughly investigate and make sure that investing in these settlements is a good investment for you. A review of your financial data with a proper financial adviser will help you make this determination. Next thing you need to do is to verify that the firm whom you are dealing with is properly licensed in the State of Florida - and check their background for disciplinary actions or litigation matters that might be pending.

Never assume (and never accept a guarantee) that an investment in a viatical is going to provide you with a guaranteed return on your investment. There are too many variables that can affect the outcome of your investment, including how long the original policy holder lives.

Once you have determined that the investment vehicle is something you are interested in, be sure that when any policy is offered to you as an investment to find out the following:

Make Sure You Find Out The Following

Obtain the address of the life insurance company as well as the policy number and verify them
Determine if you are going to be the owner or the beneficiary of the policy. Do not accept any policy where you are not the owner, as owners may change beneficiaries at any time without consent.
Determine who determined the health of the policyholder. Is the settlement company depending on medical reports or did they actually meet the policy holder?
Who made the determination on the policy holders' life expectancy? You will want to ensure that this information was provided by a heath care professional and not an actuarial.
Ask who will be requesting death certificates and death benefits
Make sure the company you are dealing with has an escrow account ensuring your money is available to you when your investment is due!

As with any other investment option, you should only agree to invest in life or viatical settlements after you have done all the necessary research and determined that the investment is right for you. You've worked hard for your money and you can protect it by ensuring you carefully invest it.

How Do Viatical Settlements Work?

Why would I want to take advantage of a viatical or life settlement?

If you have been diagnosed with a critical or life threatening illness and find that you need extra funds to maintain your lifestyle, a viatical or life settlement could be the option you need to make sure you have the monies that are necessary to help you pay everyday expenses or medical expenses.

How do Life Settlements (Viatical Settlements) work?

If you are the owner of a life insurance policy and you have a need for immediate cash, you can contact a provider, a provider representative or a broker who will ask you to fill out an application as well as medical release forms which will be provided to your insurance company and your physician to obtain information about you. This information will then be used to make an offer for a cash settlement on your policy. If it is approved and you accept th4e offer made you will be asked to sign a life settlement contract.

Do I have to liquidate my entire policy or may I keep part of it?

You are free to determine how much or how little of your policy you are willing to surrender. If you chose to liquidate only part of it, you will be required to transfer/assign that part to the new owner of the policy. If you choose to liquidate the entire policy then the new provider becomes the owner of the entire policy.

Who will send me the money from the settlement and how long will it take?

Generally speaking providers of settlements will use an escrow agent or a trustee who will send you the funds within three (3) business days of the confirmation of the transfer of the policy to the new owner. Occasionally the funds will come directly from the provider - all cont5racts and papers required must be complete before funds are released to you.

Can I change my mind?

You have two (2) opportunities to change your mind - first you can cancel prior to receiving any funds and secondarily for up to fifteen (15) days after you have received funds. Once you change your mind you need to return 100% of the funds you have received back to the provider, along with notification of rescission and request in writing that the provider transfer ownership of your policy back to you.

What rights does the new owner have?

The new owner of your policy has the right to check on your health status. This is accomplished by contacting you directly or a person whom you have appointed to take these calls. The new owner may also contact your health care professional. These calls are limited to one (1) every three (3) months and may occur no more frequently than that.

What other options are available to me?

You should check with your life insurance company to see if they offer accelerated death benefits, loans or see if you have the ability to surrender your policy for its cash value before you enter into any life settlement agreements.

Common Terms and Parties In Viatical Settlements

It is important that you understand more about viatical settlements in Florida and who the people who may be involved in the transaction may be.

Viatical Settlement Rules And Regulations

At one time use of a viatical settlement was limited to people who had been diagnosed with an illness that meant they would be deceased within twenty four (24) months, although today, this is no longer the case - today regardless of our health or your age, you can legally viaticate your life insurance policy in Florida. Because of the high risk of fraud (which cost investors up to 2 billion dollars in losses since 1996) new laws make these settlements subjected to Florida's Security Laws. All investors (and sellers) must be given full disclosure of every aspect of any transaction.

The primary parties involved in viatical settlements include:

Beneficiary - Any person who has an expectation of financial gain from a life insurance policy. In a viatical settlement, this may involve one or more investors, and they may earn this designation irrevocably meaning it cannot be changed without their written permission.

Dealer - Any company that is offering, buying, selling or dealing in any security including viatical settlements. Typically a dealer will have employees who are engaging in the sale of securities which may be issued by any issuer and are duly compensated by the issuer.

Insured - Any individual who has their life insured by any insurance policy. It is critical to understand that the insured person may not be the same as the person who actually is designated as a policy holder.

Issuer - Any entity or person who has issued, proposes to issue, may issue any interest in a life settlement (or viatical) policy. The person who is soliciting business from investors of viatical policies may also be considered an issuer in some instances.

Investor/Purchaser - Any person or entity who purchases one or more viatical (life settlement) investments is considered to be an investor or a purchaser.

Policyholder - The policy holder (who is not necessarily the insured person) owns the legal right to name beneficiaries, and controls ownership and has the right to sell the policy.

Viatical Settlement Broker - Any firm or person who is duly licensed by the Florida Department of Financial Services who offers to attempt to negotiate a settlement to a policy holder (who resides in Florida) and a settlement provider. They must represent only the interests of the policy holder and not the provider.

Licensed Life Insurance Agent - Some Life Insurance Agents who are allowed with proper appointments from a viatical settlement providers and being duly licensed to sell insurance in Florida - who is allowed to negotiate settlements without a separate viatical settlement broker's license in Florida.
Viatical Settlement Provider - Any Company or individual who is properly licensed by the Florida Department of Financial Service who purchases beneficiary rights or policy ownership from a policy holder. These companies or individuals may either hold the rights of ownership or may assign those rights to one or more investors.

Viator - The policyholder or policy owner whether the owner of an individual policy or a group policy who has entered an agreement to sell that policy.

Terms you should be aware of:

Viatical Settlement - A payment that is issued which is generally a percentage of the policy's face value, licensed provider offers a negotiated payment.

Viatical Settlement Contract - An agreement that is entered into by the person identified as a policy holder and the provider of the viatical settlement. This contract establishes all of the terms and conditions of the settlement.

Viaticate - The process of selling a life insurance policy to a third party for less than face value.