Buying a policy

The life settlement industry evolved, among other reasons, out of the need for terminally ill patients and elderly people on fixed incomes to respond to rising medical and living costs. By entering into a Viatical or Life Settlement Contract with a Viatical or Life Settlement Provider, the policyholder or certificateholder of a life insurance policy agrees to viaticate or sell his/her life insurance policy at a discounted rate of the face value so that he/she may obtain early access to the death benefit. In exchange for this cash payout, the policyholder or certificateholder names the Provider the new beneficiary/owner of the policy.

The Viatical or Life Settlement Provider/Issuer who is now the new beneficiary/owner of the policy, issues for sale entire, fractionalized or pooled interests in the death benefit of one or more viaticated policies to the potential Viatical or Life Settlement Purchaser/Investor. A sales transaction of a Viatical or Life Settlement Investment is made between the Provider/Issuer and the Purchaser/Investor by entering into or effectuating a Viatical or Life Settlement Purchase Agreement. If a Purchaser/Investor enters into a Purchase Agreement with the Provider/Issuer, then the Purchaser/Investor becomes the new beneficiary/owner of the policy and ultimately collects his/her share of the death benefit when the insured dies and the policy matures.

The Purchase Agreement sets forth the terms and conditions of each transaction. Although each Provider/Issuer Company designs its own Purchase Agreement, there are common elements to all Purchase Agreements.

A Provider/Issuer will make certain general disclosures to a Purchaser/Investor of viatical or life settlements before entering into a Purchase Agreement. Some of these disclosures include the rate of return, the identity of the party or parties responsible for making future premiums, conversion rights on a group policy and who determines the life expectancy of the insured, e.g., in –house staff, independent physicians, specialty firms, etc.

The rate of return on a Viatical or Life Settlement Investment depends on the Purchaser/Investor’s proportional share of the net death benefit and the estimated life expectancy of the insured. Several factors determine the life expectancy of an insured. Firstly, an investment can be made in either a Viatical or Life Settlement. The term Viatical and/or Life Settlement may have, however, different definitions depending upon which state is regulating them. The insured in a viatical settlement is always terminally ill and usually has thirty-six (36) months or less to live, while the insured in a life settlement is a "senior" generally over the age of sixty-five (65) who may have health complications that even though are not terminal today, may become so in the next few years. The Provider/Issuer that you purchase your Viatical or Life Settlement Investment from will provide you with an estimated life expectancy of the insured(s) and how that determination was made.

Since the basis of this Investment is a life insurance product, premiums must continue to be paid until the insured dies and the policy matures. Funds used to pay future premiums are usually set aside by the Provider/Issuer and held by an Escrow Agent in an escrow account for the estimated life expectancy of the insured.

While the sale of viatical and/or life settlement investment in some states is considered the sale of a security and regulated as such, each state’s securities laws may define and regulate them differently. You may wish to consult your state’s securities division to determine if and/or how your state regulates the sale of these investments. As with any investment, you should consult your financial adviser to determine if investing in viatical and/or life settlements is right for you.