The New York Times Magazine recently ran an article on life settlements or viatical settlements. These settlements are the process in which individuals sell their life insurance policies to investors to receive cash now. As the article notes, “Life insurance is designed to benefit the living, a spouse or heirs, not those who perish.” However, these life settlements allow the insured to receive an immediate payment to be able to pay bills and provide financial support during their lifetime.
The typical candidates who participate in a life settlement are terminally ill and need money to support their last few years of life. However, life settlements have also been useful to older individuals whose retirement savings have dwindled and/or took a hit during the economic downturn.
The process
The insured, or a broker, approaches settlement companies to seek a bid on a life insurance policy. The settlement company will request information to determine if the life insurance policy is a wise investment and an estimated return on their investment. If an agreement is reached between the insured and the settlement company, the settlement company will pay the insured a sum of money and will pay the premiums on the policy until the insured passes away. In return, the insured will list the settlement company as the beneficiary of the policy to receive the death benefit once the insured passes away. Ultimately, the settlement company is taking the bet that the insured will not live very long so to pay fewer premium payments and receive a larger return on their investment.
You can read the full article, Are You Worth More Dead Than Alive?, here. Viatical settlements may not be appropriate for everyone. You should contact an insurance agent or other trusted advisor to determine if it is the correct decision for you if you are considering selling your life insurance policy.
