Life Insurance Questions – Viaticals and Life Settlements

Question:  I recently heard about a company that buys life insurance policies.  I am in the process of selling my business and won’t need my life insurance policy any longer.  Is it possible to sell it?  Wynn – Breckenridge, Colorado

Dear Wynn:  Generally, there are two types of arrangements whereby a company buys a life insurance policy.  They are called Viaticals, and Life Settlements.  A Viatical involves the purchase of a life insurance policy from a terminally ill patient.  The idea is to allow the patient to live the remainder of their life more comfortably by providing them with an additional influx of cash while they are living.  A company (or entity) buys their life insurance policy for an amount less than the death benefit and, in turn, they become the owner and beneficiary of the policy.  When the terminally ill patient dies, the entity receives the death benefit.

Viaticals became popular when the AIDS epidemic was surging in our society.  In the right circumstance Viaticals can provide a win/win situation.  However, in the early years, the lack of regulation led to some unscrupulous activities associated with Viaticals.  One such activity involved life insurance agents conning people who were terminally ill to apply for insurance and lie on the application regarding their health condition.  Then they would wait to collect on the death benefit when the person died.  The Viatical industry is now more regulated which has given rise to a whole new industry; Life Settlements.

Life Settlements are not uncommon to use in your situation where you are selling a business and no longer need your life insurance policy.  The mechanics are identical to Viaticals whereby a company (or entity) would purchase your life insurance policy from you and in turn they would become the owner and beneficiary.  Interestingly enough, all types of insurance policies including term insurance can be candidates for this type of arrangement.  However, Life Settlements can only be used if you fit a very specific profile.  Generally your life expectancy must be less than 15 years. Therefore if you are under 65 and in good health, chances are you don’t fit the bill.  Additionally, most Life Settlements will require you to have had some negative change in health status since the date you purchased the policy.  This tips the scale in their favor since the sooner you die, the quicker they get their payout.  It is possible that a Life Settlement could be used as a viable option to cashing out or letting your life insurance policy lapse if you no longer need the death benefit.  There are a hand full of companies that specialize in this area and I would be happy to steer you in the right direction once I know more about your particular situation.  Personally, I would have a hard time knowing a business is out there waiting for me to die so they can get their payout.  Enjoy Life!

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