5 Considerations to Consider Before You Enter Into a Viatical or Life Settlement (Sale of an Unwanted Life Insurance Policy)

Planners and insureds who are contemplating life settlements or viaticals should also take the following into consideration. This will ensure that the best possible decisions will be made in regards to policy decisions. These considerations are:

  1. Confidentiality and beneficiaries – Most companies stress the confidential nature of the transaction but they require the named beneficiary to release any possible claim to the proceeds. If the insured does not want the beneficiary to know of the sale, he or she may change beneficiaries just prior to completing the settlement. If the estate is named as beneficiary, the insured (owner) would be the only one who would need to sign the release forms. However, if death occurred after the time the beneficiary was changed, but before the settlement was completed, the insurance proceeds would be paid to the estate and would, therefore, be subject to probate administration.
  2. Group insurance – Group insurance policies may be eligible to be sold in viatical and life settlements, but they generally must be portable. If a group insurance policy is sold this will usually require that one’s employer is notified.
  3. Resale of policies – Confidentiality may be lost if the policy is sold by the settlement company in the secondary market to individual investors, since a new investor would want to know the health status and life expectancy of the insured.
  4. Escrow accounts – An escrow account is generally used to make certain that the payment of the agreed upon amount is made to the insured shortly after the insurance company notifies the escrow company that the ownership of the policy has been transferred.
  5. Shop and negotiate – Several settlement companies should be investigated in order to negotiate the best offer.
Reproduced with permission.  Copyright The National Underwriter Co. Division of ALM

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