A life settlement company purchases or buys an outside party’s life insurance policy that they no longer need, want, or can financially afford. Life settlement policies are defined as requests, sales, transfers or other assignments of an insurance policy to another outside source or party. For life settlements, the terms are legally understood or the policy has an insurance prerequisite that a selling policy holder/owner be healthy at the time of the sale. The owner can may not be diseased or have any other fatal medical conditions.
In this day and time, there are a variety of reasons that a life insurance policy owner may consider selling their life insurance policy and they may include:
- The insurance owner of the acquired policy may not want their policy any longer;
- The insurance policy owner may not need their policy anymore;
- The insurance policy holder/owner may wish to purchase another type of life insurance policy;
- The insurance premiums may no longer be in the insurance owner’s budget or the premium payments just may not be financially affordable for them now
A policy holder may have learned this financial information about settling their life insurance policies from a friend or family member, an estate planning presentation, an attorney, an insurance broker, or their financial advisor or planner.
Key individuals, judicial rulings, and numerous other events were some of the main topics that started the initial life settlement market.
Life insurance policies were considered private property of the individual policy owner by Justice Oliver Wendell Holmes of the U.S. Supreme Court. This court ruling was handed down in 1911 in the case of Grigsby v. Russell, 222 U.S. 149.
Justice Holmes remarked in his legal opinion that a policy of life insurance may be transferred at the discretion of its owner or holder to any person that they chose to have or leave it to unless restrictions were implemented by the insurance carrier.
Life insurance policies can be transferable property if the person includes specific legal rights that include:
- The beneficiary name located in the insurance policy itself;
- The policy holder may change the designation of the beneficiary, unless the insurance company puts restrictions in the policy;
- The owner of the policy may assign the policy for loan collateral;
- The policy owner may borrow against the insurance policy;
- The policy owner may sell the insurance policy to another party
A life settlement transaction may resemble a viatical settlement but the life settlement’s policy holder cannot have any fatal diseases of any sort during the sell to the buyer.
Life settlement transaction may be through several entities. Some examples may include:
So if an individual has a life insurance policy that they no longer want, need or desire to have for any reason, perhaps a life settlement transaction may be good for both of the parties.