A life settlement is the legal sale of an existing (typically senior) life insurance policy to a third-party investor for more than its cash surrender value but less than its net death benefit. The investor is responsible for paying ongoing premiums and receives the death benefit upon the insured’s demise.
The primary reason the policyowner sells is because they can no longer afford the ongoing premiums, they no longer need or want the policy, they need money for other expenses, or they can no longer afford the ongoing premiums. In general, the policyholder receives three to five times the policy’s surrender value.
In a retained death benefit transaction, policyowners and beneficiaries receive cash payments after the death of the insured. After the conclusion of the transaction, there are no further premium obligations. Life settlement is available for term, permanent, and whole-life insurance policies.
What is the definition of a Viator in life insurance?
Analysis: – “viatical settlement company” is defined as follows by New York Insurance Law 7801(a) (McKinney, 2000): Viatical settlement company means an individual, partnership, corporation, or other entity not prohibited from acting as a viatical settlement company that enters into an agreement with a person owning a life insurance policy insuring the life of a person with a catastrophic or life-threatening illness or condition, under the terms of which the viatical settlement company pays compensation or anything of value, which compensation or value is less than the expected value of the life insurance policy.
New York Insurance Law section 7801(b) defines “viator” as follows: ‘Viator’ refers to the owner of a life insurance policy covering the life of a person with a catastrophic or life-threatening illness or condition, who enters into an agreement under which the viatical settlement company will pay compensation or anything of value that is less than the expected death benefit of the insurance policy, in exchange for the viator’s assignment, transfer, sale, devise, or bequest of the death benefit or ownership of the insurance policy.
A person insured under a group life insurance policy who is not prohibited from assigning his or her rights or benefits and who assigns those rights or benefits through a viatical settlement is also considered a viator. In its comments to the Governor regarding Senate Bill 5303-A (Sen.
- Velella), which enacted New York Insurance Law Article 78, 1993 N.Y.
- Laws 638, the Department stated with regard to New York Insurance Law 7801, “Many of these definitions will require clarification by the Department.” An administrative agency, such as this Department, is axiomatically expected to fill the gaps left by the legislature.
Dorst v. Pataki, 90 N.Y.2d 296, 665 N.Y.S.2d 65 (1997). When it authorized the Superintendent of Insurance to promulgate regulations for viatical settlements, the legislature anticipated this possibility.7810 of the New York Insurance Law (McKinney 2000).
- Regulation 148 does not define the term “viator.” N.Y. Comp.R. & Regs.
- Tit.11, 380.9 (2001) provides: (a) A viator may not assign, transfer, sell, devise or bequeath to a viatical settlement company: (1) a death benefit payable to an insured other than the viator; or (2) an accidental death benefit.
- B) A viator may not assign death benefits under a joint life or joint survivorship insurance policy unless the other insured has predeceased the viator.
Therefore, this Department believes it is evident from the language of N.Y. Comp.R. & Regs. title 11, section 380.9(a) that the owner/operator must also be the insured. In addition, this Department disagrees that the language of N.Y. Comp.R. & Regs. title 11, section 380.9(a) is inconsistent with the legislative intent.
- The language of New York Insurance Law 7801 cannot be interpreted in isolation from the rest of Article 78 of the New York Insurance Law.
- Section 7808(a) of the New York Insurance Law (McKinney 2000) provides: A viatical settlement company entering into a viatical settlement with any viator shall first obtain a duly witnessed and authorized application in which the viator consents to the viatical settlement, acknowledges the catastrophic or life-threatening illness, represents that he or she has a full and complete understanding of the viatical settlement, that he or she has a full and complete understanding of the benefits of the life insurance policy, releases his or her med-pay rights, and releases his or her estate rights.
(italics added) When 7801(b) is read in conjunction with 7808(a) of the New York Insurance Law, it is evident that the legislature intended for the same individual to be the viator and the insured in the case of individual life insurance. Thus, in its regulatory capacity, this Department has always interpreted N.Y.
- Comp.R. & Regs.
- Title 11, 380.9(a), cited above, to prohibit a policyholder from selling such a policy to a viatical settlement company.
- Even though New York Insurance Law 7809 (McKinney 2000) allows the insured to be someone other than the policyholder for group life insurance policies, the insured individual must be the one who sells the policy.
The inquirer also cited several provisions of N.Y. Comp.R. & Regs. title 11, 380.6(g) (2001) that, in his opinion, contain contradictory statements: (g) The application for the viatical settlement contract must: (1) include a conspicuously displayed notice stating: “A viatical settlement payment may affect eligibility for public assistance programs such as medical assistance (medicaid), assistance to families with dependent children, supplemental social security income, and AIDS drug assistance programs, and may be taxable.
Prior to applying for a viatical settlement, policyowners should consult with the appropriate social services agency and a qualified tax advisor regarding how receipt will affect the eligibility of the recipient and the recipient’s spouse or dependents “; (2) contain the applicant’s consent to the viatical settlement, an acknowledgment by the applicant that he or she has a catastrophic or life-threatening illness, and the applicant’s representation that he or she has a full and complete understanding of the viatical settlement; (3) contain a provision that the proposal which the viatical settlement company will deliver to the applicant prior to the signing of the viatical settlement will not include a detailed description of the viatical settlement; and (4) contain a provision The notice required by N.Y.
Comp.R. & Regs. title 11, 380.6(g)(1) is identical to the notice required by New York Insurance Law 7807(a) (McKinney 2001). Consequently, there cannot be any inconsistency with the law. This Department does not believe that N.Y. Comp.R. & Regs. tit.11, 380.6(g)(2) is inconsistent with the statute or could lead to confusion.
- This Department acknowledges the inquirer’s belief that N.Y. Comp.R. & Regs.
- Tit.11, 380.6(g)(3) “implies that the applicant is distinct from the viator, but the viator’s life expectancy must be considered in the application.” The Department disagrees, but will consider whether the statute or regulation should be amended to avoid any potential confusion.
For more information, please contact Alan Rachlin, the office’s principal attorney, in New York City.: Viatical Settlement, Definition of “Viator”
If you have been diagnosed with a terminal illness, such as AIDS or cancer, or a chronic illness that impedes your ability to perform daily tasks, you face numerous obstacles. You are likely to incur medical expenses that your insurance will not cover, in addition to other bills.
- Traditionally, life insurance assists beneficiaries in meeting their financial obligations.
- However, there are two additional options that allow the insured to access their life insurance benefits while they are still alive.
- Viatical Settlements and Accelerated Death Benefits are the options available.
Since July 1, 2010, viatical settlements for individuals who are not terminally ill or chronically ill are governed by strict and specific guidelines under Illinois law. If you are offered “free,” “no cost,” or “zero premium” life insurance, you may be the victim of an illegal scheme.
- For more information, please refer to the section titled “Stranger-Originated Life Insurance” or contact the Department at (866) 445-5390.
- What is a temporary residence? A viatical settlement is a contractual agreement that provides a policyholder with immediate cash in exchange for the sale and transfer of ownership rights to a life insurance policy.
The person selling the life insurance policy, known as theviator, relinquishes ownership of the policy in exchange for a cash payment that is less than the full amount of the policy’s death benefit. If you have a terminal or chronic illness, a viatical settlement allows you to sell an existing life insurance policy to a viatical settlement provider.
- The word viatical is derived from the Latin word viaticum, which means “food and drink for a long journey.” Which parties participate in a Viatical Settlement? A provider of viatical settlements is the individual or organization that purchases the life insurance policy.
- The viatical settlement provider becomes the owner of the policy, must pay any outstanding premiums, and eventually receives the full death benefit from the insurance company.
A viatical settlement broker is a person or company that represents the seller (viator) and can “shop around” for viatical offers. What constitutes a chronic or terminal illness for the purposes of a Viatical Settlement? A terminal illness is an illness or physical condition that a physician certifies as having a life expectancy of less than 24 months.
(1) an inability to perform, without substantial assistance and for at least 90 days due to a loss of functional capacity, at least 2 activities of daily living, such as eating, toileting, transferring, bathing, dressing, or continence; (2) requiring substantial supervision to protect the individual from threats to health and safety due to the illness.
What is the definition of Accelerated Death Benefits? Accelerated Death Benefits are paid by an insurance company on an existing policy as a percentage of the face amount of the policy, less any outstanding policy loans. While the terms of some older policies may not permit an accelerated death benefit, a growing number of insurance companies are making this option available to policyholders.
Check with your insurance company or agent to determine if this option is available. If you accept an accelerated death benefit payment, you could lose eligibility for Medicaid and other government benefits, and the benefits could be taxable. Prior to entering into a financial agreement, you should consult with your tax and/or legal advisor to determine whether or not this is applicable to your individual situation.
What Should I Consider When Evaluating a Settlement for Viatical Leave or Accelerated Death Benefits? A viatical settlement or accelerated death benefit may be a good source of funds, but you must fully comprehend how your decision will affect you and your beneficiaries.
Before applying for a viatical settlement or accelerated death benefits, you must: If you negotiate via a viatical settlement broker, obtain the name of the viatical settlement provider. Check with the Department to ensure that both the provider and the broker are licensed. Recognize that after your death, the policy may not pay any death benefit to your beneficiaries.
Or it may pay a significantly lower benefit than you anticipated when you purchased the policy. Consider whether other options would serve you better. You could either borrow the cash value of your life insurance policy or cancel it and withdraw the cash value.
Ask your accountant if your creditors can attempt to collect what you owe them from your life insurance payouts if you owe money. Recent federal legislation exempts from taxation viatical settlements and accelerated death benefits, a boon for terminally ill patients. In certain situations, the sale of a life insurance policy may have tax implications; for instance, if you are not terminally ill and you sell your policy to a viatical settlement provider.
Determine how payments from your life insurance will impact your eligibility for programs like Medicaid and Social Security supplemental income. NOTE: As of July 1, 2010, it is illegal under Illinois law for a person to enter into a viatical settlement contract within two years of the insurance policy’s issuance unless certain conditions are met, including the viator’s terminal or chronic illness diagnosis.
- Before entering into a viatical settlement contract less than two years after the issuance of your life insurance policy, you must contact the Department.
- Must I be informed of anything prior to signing the Viatical Settlement Contract? Yes.
- The Viatical Settlement Act of 2009 (Public Law 96-739) (the Act) provides new consumer protections for individuals seeking to enter into a viatical settlement beginning on July 1, 2010.
Certain disclosures must be made to the viator no later than the time the viatical settlement application is signed, as required by the Act. Disclosures must be signed by both the operator and provider or broker. Before you sign a viatical settlement contract, the following information must be disclosed: The beneficiaries of your life insurance policy lose the policy’s benefits, equity, and protection, and you may not be eligible for another life insurance policy or be required to pay substantially higher premiums if you enter into the contract.
There are alternatives to viatical settlement contracts, such as policy loans and accelerated death benefits. The viatical settlement broker represents only you, not the insurer or viatical settlement provider, and owes you a fiduciary duty, which includes the duty to follow your instructions and act in your best interests.
It is possible that some or all of the proceeds from the viatical settlement are taxable, so you should consult a tax professional. The viatical settlement proceeds may be subject to the claims of creditors. The receipt of proceeds from a viatical settlement may have a negative impact on your eligibility for Medicaid and other government benefits and entitlements.
You may rescind the viatical settlement contract within the earlier of (1) 30 calendar days after the contract is executed by all parties or (2) 15 calendar days after the viatical settlement proceeds have been paid. After the viatical settlement provider has received written confirmation that ownership of your life insurance contract has been transferred, the funds must be sent to you within three business days.
A provider or broker of viatical settlements may request your medical, financial, and personal information, which may be disclosed as required to complete the settlement. If your life expectancy is greater than one year, you may be contacted every three months to determine your health status.
- If your life expectancy is less than one year, you may be contacted every month.
- If you enter into a viatical settlement contract, investors will have a financial interest in your demise.
- You must also receive a document titled “Important Consumer Notices” that contains similar disclosures and additional information about parties involved in the viatical settlement contract.
How are Viatical Settlements and Accelerated Death Benefits Different?
|Viatical Settlements||Accelerated Death Benefits (ADB)|
|Who is a candidate?||Generally, Viatical Settlement Providers (VSPs) only buy your policy if you have 24 months or less to live. But some may buy policies from people with longer life expectancies.||You are usually eligible if you have 24 months or less to live and you added this option to your life insurance policy before you became terminally ill.|
|How do I find a provider?||Check the list of licensed VSPs, or go through a viatical settlement broker who will shop for a viatical settlement provider for you.||Check first with your life insurance agent. Most insurers offer this option.|
|What type of policy qualifies?||A VSP can buy almost any type of life insurance policy, including term, whole and universal life.||Life insurance companies usually limit this option to certain policies.|
|Who pays the benefit?||The VSP pays you in return for the rights to your life insurance policy.||Your life insurance company pays you.|
|How do I get the money?||Contact a licensed VSP for an application and to find out what you must do to prove you are terminally or chronically ill.||Contact the life insurance company that issued the ADB option. Find out what you must do to prove you are terminally ill or have a qualified covered condition.|
|How much can I get?||VSPs pay a lump sum usually from 50% to 85% of the face value of your policy, depending on your life expectancy.||ADB options usually pay 50% to 80% of the face value of your policy. You may be able to choose between a lump sum or monthly payments. Illinois law also lets life insurance companies pay up to 75% of the policy’s face value for some specific medical conditions, such as heart attack, Alzheimer’s Disease, or major organ transplant.|
|What happens to my life insurance?||The VSP will pay the rest of the premiums. The insurance company will pay the policy’s benefits to the VSP upon your death. Your beneficiary will not receive the death benefit.||You must keep paying the insurance premiums if you want the company to pay the beneficiary the remaining death benefit.|
Who is known as the Viator?
A viator is a person with a terminal or life-threatening illness who decides to sell their life insurance policy. Thus, viators receive a portion of the death benefits while still living. Frequently, viators are motivated by the desire to finance expensive or experimental life-extending treatments.
Before You Decide – Viatical settlements enable policyholders to sell their life insurance policies to investors for an immediate cash payout. In exchange, the buyer becomes the new owner of the life insurance policy, pays future premiums, and collects the death benefit when the insured dies.