A Glossary of the Terms Used in the Life Settlement Industry

Selling life insurance policies has gained quite some popularity in the last couple of years. It’s especially great for retirement planning as it allows individuals to get compensation for a policy they may no longer need and turn it into a source of income instead.

Not familiar with the technicalities of life settlement? Here are a few important terms to know about.

Life Settlement

The first (and the most important) term to know is life settlement itself. This refers to a financial transaction in which an individual can transfer the ownership of their life insurance policy that they may no longer want or need, to a third party. The entity that purchases the policy becomes the new owner beneficiary, and is subsequently responsible for any premium payments that follow from that point onward.

Note that life settlement and life Insurance are two different things. The latter refers to an asset that provides financial security and protection by allowing the insured individual to get certain monetary benefits (death benefits) for their family or loved ones from an insurance company.

Life Settlement Broker

This refers to the person/entity who represents the policy owner. They act on the owner’s behalf and negotiate sale contracts with providers for a certain commission. A life settlement broker is responsible for presenting the owner’s policy, along with an underwriting package to various life settlement providers to get the best offers, and
consequently, present these to the owner. They have a fiduciary responsibility to get the highest price in the market for the seller’s policy, and thus are obligated to act in the seller’s best interests. Brokers are not attorneys, financial planners, or public accountants, nor do they consult individuals from these professions for the process.

Life Settlement Provider

Life settlement providers are companies and entities that purchase the life insurance policy from individuals (owners) selling them through brokers. These companies are licensed to purchase insurance policies by the state. Upon purchasing an insurance policy, the company in question becomes the new beneficiary.

Life settlement providers can buy the insurance policies for their own use as well as on behalf of another investors or financers. In the case of the latter, life settlement providers represent the acquisition goals of the entity they’re acting on behalf of. While life settlement brokers have a fiduciary duty to the policy owner/seller, this isn’t the case with providers.

Life Expectancy

Life expectancy is the average number of months or years the insured individual is expected to live for. This is determined by considering their medical records, consulting experiential data, and referring to mortality tables. The life expectancy report that compiles and evaluates this information is specific to each individual and helps in determining life settlement offers.

Beneficiary

This refers to the person(s) chosen by the policy owner who’ll receive the death benefit upon the death of the insured individual.

Viatical Settlement

Originating from the Latin word viaticum, a viatical settlement is the sale of a life insurance policy of a terminally ill individual to a third party. The terminally ill (or catastrophically ill) individual selling their policy typically does so at a discount from its face value. The term viatical settlement is defined by many states as the underlying insured person having a life expectancy of 24 months or less. Individuals who have a life expectancy longer than 24 months are referred to life settlements.

About Prosperity Life Settlements

Prosperity Life Settlements is a life settlement broker that helps individuals sell their life insurance for cash. They also offer a free life insurance settlement calculator.

Get in touch with their agents today to determine if you qualify for a life settlement.