Selling your life insurance is an option you might consider if you’re in a difficult financial situation for which you don’t see a close end. A terminal illness or old age could cause you to think twice about paying those hefty premiums at this stage of your life. Selling your life insurance carries with it complex implications and substantial risks, so it is important that you educate yourself regarding the big picture. If you’re interested in selling your life insurance, this is a good starting point to obtain some basic information.
Basics: Vocabulary
If you’ve already done any research on selling your life insurance, chances are good that you’ve come across two main terms: viaticals and life settlements. Both refer to the selling of your life insurance to a third party. So what’s the difference? “Viatical” is typically used to refer to the transaction involving a chronically or terminally ill insured, while a “life resolution” is a transaction involving a senior (generally over the age of 65) who is not terminally ill.
Even though you now know the difference, it does not mean that your state does. These terms might be used interchangeably, or your state might use one of them to refer to both transactions. For example, your state could use “Viatical resolution” to refer to any type of transaction regarding selling your insurance. Be aware that this kind of ambiguity may exist in relation to the vocabulary used in the sale of your life insurance policy.
How it Works
The owner of the life insurance policy policy will sell it for a percentage of the death profit a lump sum to a third party and, in exchange, receives an often substantial lump sum payment. The third party then gets the new owner and/or beneficiary of the policy and pays all of the future premiums and eventually collects the death benefit when the insured passes away.
Those considering selling their life insurance may either directly approach a viatical company or resolution firm, or they may Choose to work with a broker. The broker will act as an intermediary and present the information to several different companies/firms in an effort to find the highest price for the sale.
The settlement firms buy the insurance policy on behalf of investors. In this position, the investors become the owners and beneficiaries, and the resolution firm pays the premium until the insured dies. The firm then collects the death profit and either pays its investors a percentage of the annual return or repackages the policy for sale to another party.
