Viatical/Life Settlements Flashcards
Viatical Settlements
Allow terminally ill people with a life expectancy of two years or less to sell their LI to investors in exchange for a portion of the death benefit
Investors become irrevocable beneficiaries and…
Receive death benefit when the person passes away
Often provides more money to the insured person than…
Withdrawal of cash value or use of accelerated death benefits
Policy can be sold by…
A viator through a viatical broker or directly to a settlement company
Typically requires consent from…
Owner, insured and any irrevocable beneficiaries
Typically required proof that…
Seller is of sound mind
Involves periodic contact to determine…
Insured’s health/life expectancy
Life Settlements
LI is purchased from moderately ill senior citizens who aren’t terminally ill
STOLI stands for…
Stranger-Originated Life Insurance
STOLI
Consumers are recruited by investors to buy LI and then sell it to them
STOLI: Many states don’t allow settlements within…
2 years of purchase
Amounts received for terminally ill people (2 years to live) are…
Tax free if money is from a licensed settlement company
Chronically ill (more than 2 years to live) pay…
No taxes on portions that are a return of premium or that are used for qualified LTC services
Taxed as Income
More than premiums but less than policy’s cash surrender value
Taxed as Capital Gain
More than policy’s cash surrender value
