Life Settlement:
A life settlement is a financial transaction in which a life insurance policy owner possessing an unneeded or unwanted life insurance policy sells the policy (at fair market value) to a third party for more than the cash surrender value offered by the life insurance company. The purchaser becomes the new beneficiary of the policy at maturation and is responsible for all subsequent premium payments.

Generally speaking, life settlements are an option for high-net-worth policy owners age 65 or older. Independent estimates report that among this group, 20% of policies have a market value that exceeds the cash value offered by the carrier. And while many policyowners are unfamiliar with life settlements until a financial professional mentions the option to them, the concept has gained attention from high-profile proponents such as Warren Buffett, former U.S. Representative Bill Gradison, and numerous media sources including The Wall Street Journal, Time Magazine, Business Week and The Economist. A growing number of experts now believe that informing clients about offering life settlements should fall under the fiduciary duty of a financial adviser. With this being said, those established in the industry are now placing an emphasis on life settlement education for financial professionals so that they can accurately present the life settlement option to all clients who might benefit from it.

Viatical settlement
A viatical settlement is the sale of a life insurance policy by the policy owner before the policy matures. Such a sale, at a price discounted from the face amount of the policy but usually in excess of the premiums paid or current cash surrender value, provides the seller an immediate cash settlement. Generally, viatical settlements involve insured individuals with a shorter life expectancy. In countries without state-subsidized healthcare and high healthcare costs (e.g. United States), this is a practical way to pay extremely high health insurance premiums that severely ill people face. A life settlement is a similar transaction but involves insureds with longer life expectancies.

From the perspective of the investor, purchasing a viatical settlement is similar to buying a zero coupon bond with an uncertain maturity date. The return depends on the seller's life expectancy and when he or she dies.

Viatical settlements grew in popularity in the United States in the late 1980s, when the AIDS epidemic first hit. The early victims of AIDS in the U.S. were largely gay men, many of whom were not particularly old. They often had no wives or children (the traditional dependants in a life insurance policy), but they had life insurance policies through employment or due to other investment activity. The dependants on the policies were often their parents who did not need the money. Viatical settlements offered a way to extract value from the policy while the policyholder was still alive.

At the time, the AIDS mortality rate was very high, and life expectancy after diagnosis was typically short. Investors were reasonably sure that they would collect in a relatively short time. This combination of events caused a surge in viatical settlements as both investors and viators saw an opportunity for mutual benefit.

Viatical settlements eventually developed a bad reputation in the investing community. The companies that purchased them from policy holders typically resold them to individual investors. Salespeople were paid large commissions to push the settlements, which were not conventional investments and which were misunderstood by many investors. The government regulatory agencies had little experience and few regulations dealing with viatical settlements, and the industry attracted some unscrupulous dealers.

Despite the bad experience of some investors, viatical settlements remain an often valuable tool for the personal financial management of many ill people. A 2002 study showed that among hospice financial counselors who have had experience with viatical settlements, most report positive experiences

Now What?
Many Americans are concerned about their personal financial future in an uncertain economy that the US has experienced recently. Life settlements or "senior" settlements, have become important alternatives for unlocking embedded value in investments in life insurance.

It is a little known fact that policies insuring those age 65 and over can be sold. Policies bought years before that have now lost their utility can be sold, generally for more than cash value.

Many senior citizens will be pleasantly relieved to know that they can now receive the money while still alive, possibly tax free, and that they will not have to make any more policy premium payments.



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