What Types of Life Insurance Policies can be Sold for Cash?

Single life policies are generally much more attractive to viatical and life settlement providers. A viatical settlement of a survivorship policy is unlikely due to the fact that both insured’s would have to be terminally ill or have very short life expectancies. The life settlement market for survivorship policies isn’t much better, because the settlement companies have to wait until the death of the second insured to collect the death proceeds. Both insureds would need to have life expectancies not exceeding eleven to fifteen years.

As for product types, Universal Life (UL) policies are generally more attractive to settlement companies, especially in the case of life settlements. This is because the settlement companies have the flexibility to reduce premiums to just cover the annual cost of insurance charges or pay some other minimum premium amount, the flexibility to take cash value out of the policy and invest it in a different manner, and the flexibility to reduce the face amount if needed. This includes Variable Universal Life (VUL). However, as discussed below, special rules apply when a VUL policy is settled.

Term insurance and group term insurance can also frequently be settled. However, certain factors make them more attractive to settlement companies; such as conversion features which enable them to be converted to a flexible premium cash value product.

Whole-life policies, especially in the case of life settlements, may be less attractive to settlement companies because they tend to be less flexible when it comes to premium flexibility, ability to pull out cash values, and the ability to adjust the death benefit. In addition, since these products are generally designed to endow at maturity (e.g., age 100), they tend to have higher cash values. This makes it less likely that the settlement offer will exceed the surrender value.

Reproduced with permission.  Copyright The National Underwriter Co. Division of ALM

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