Selling your policy

A viatical or life settlement is the sale to a third party of an existing life insurance policy for more than its cash surrender value but less than its net death benefit. Regulatory usage of the terms “viatical settlement” and “life settlement” varies by state. However, the market generally uses the term viatical settlement to refer to instances where the insured is terminally ill with a life expectancy of less than two years. A life settlement focuses on policies insuring older individuals with life expectancies greater than two years.

Historically, if an owner of a life insurance policy found that the policy was no longer needed due to changed needs or circumstances, the owner could elect to cancel the policy and receive the policy’s cash surrender value as a lump sum. In the past several years, a number of companies have raised pools of capital and created a more liquid secondary market for life insurance policies. Simply put, these companies will competitively bid on the purchase of an existing policy taking into account the insured’s current age, state of health, and the overall economic environment In other words, if they qualify, those wishing to cash in their policies can now get a competitive market quote based on several bids.

The buyer (called a provider) becomes the new owner of the life insurance policy, pays future premiums, and collects the death benefit when the insured dies. The sale of an existing life insurance policy by its owner is regulated in many states. If you live in one of the regulated states, you should know the rules that apply. You can find much information on this website.