A Life Insurance policy can be liquidated for fair market value and the proceeds redistributed to address current financial planning goals such as retirement income, long term care, annuity, vacation or anyway you please.

A Life Insurance policy is an asset.  This basic premise was established in Grigsby vs. Russell in 1911.  This case established a Life Insurance policy as private property, which can be assigned at the will of the owner.  In other words, a Life Insurance policy is an asset just like a house or a car and can be sold just like a house or a car.

Even though the legal premise for Life Settlement dates back to 1911 the settlement industry didn’t emerge until the eighties.    The US AIDS crisis of the eighties fueled the Viatical Settlement market. A Viatical Settlement is the sale of a life insurance policy whose insured is terminally ill, has a life expectancy of less than 2 years, to a third party for a lump sum of cash.

The Life Settlement market emerged as a result of Viatical Settlements.  A Life Settlement is the sale of an existing in-force life insurance policy, on an insured whose 65 or older, and whose life expectancy is greater than 2 years (not terminally ill), to a third party for an amount greater than the cash surrender value.

• The policy owner receives cash for the policy
• The new owner becomes responsible for all future premium payments
• The new owner becomes the beneficiary of the policy

At the death of the insured, the death benefit is paid to the new owner.  The significant difference between a Viatical Settlement and a Life Settlement is that with a Life Settlement the Insured has a life expectancy greater than 2 years.

Both Viatical and Life Settlements are highly regulated.  Settlement laws and regulations encompass more than 90% of the US which includes 42 states and Puerto Rico.  Life Settlement legislation is being introduced as an alternative to Medicaid for seniors seeking Long Term Care assistance.  So far, Texas and Kentucky have passed Medicaid Settlement bills, and 9 additional states have introduced similar bills.

Life Settlement is an option which allows for policy owners to tap previously unrealized value in their unwanted, unaffordable, or underperforming Life Insurance policies.  There are not restriction on how the proceeds from a Life Settlement can be used.

The proceeds may be taxable.  A tax advisor or attorney should be consult on taxable issues.