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  • When to sell insurance through viatical/settlement
  • August 9, 2013
  • Tony Steuer

    By Tony Steuer, CLU, LA

    People living with a terminal illness often face very tough financial choices, which is why selling their life insurance policy for a viatical or life settlement may be in their favor.

    Life insurance policies are sold to a third party who takes on the all the responsibilities and remaining benefits of the policy. Sellers are then rewarded with a cash value.

    This is generally a good decision to make if the insured is diagnosed with a terminal illness or the existing policy isn’t performing as expected.

    What are some tips to consider prior to selling a life insurance policy through a viatical or life settlement?

    Here are some tips and questions to ask yourself:

    Selling one’s life insurance is generally a good idea when the insured as been diagnosed with a terminal illness or a policy isn’t performing as expected.

    · Is there still a need for life insurance?

    · If you’re interested in selling your policy, you should visit your State Insurance Department for more information and to review the appropriate state insurance laws.

    · Consider all your options

    · Find out if the policy has any cash value, which may be used to meet immediate needs and keep the policy in-force for beneficiaries. It may also be used as security for a loan from a financial institution.

    · Does the life insurance policy have an accelerated death benefit provision? This could pay a substantial portion of the policy’s death benefit and then the policy would not need to be sold to a third party.

    · If I sell my policy, how do they decide how much cash I get?

    · Is this an employer or other group policy? If so, do I need their permission to sell it?

    · If I sell my policy, who will be the legal owner?

    · Do I need the advice of a tax or estate-planning advisor before I decide to sell my policy?

    · Find out the tax implications; not all proceeds are tax-free.

    · Know that the proceeds are subject to the claims of any creditors.

    · Understand what information a buyer must know about you to buy your policy, and who else might get that information. You must provide certain medical and personal information, which may be disclosed to investors.

    · Understand how the process works and when the phases will happen.

    · Decide whether to sell the policy directly to a life or viatical settlement provider or to go through a settlement broker who will do the comparison-shopping.

    · If you don’t use a settlement broker, compare different options on your own.

    · Any life or viatical settlement offer is just that, an offer that does not need to be accepted.

    · Check all application forms for accuracy, especially information about medical history.

    · You must be truthful in your answers to application questions.

    · Make the settlement provider agrees to put your settlement proceeds in escrow with an independent party or financial institution to make sure your funds are safe during the transfer.

    · Find out if you have the right to change your mind about the settlement after you get proceeds. If you have that right, you’ll have to return the money you were paid and the premiums the buyer paid.

    · Can the policy be resold?

    If you seek further assistance or additional information, please feel free to email me at editor@lifequotes.com.

About Tony Steuer

Noted insurance author Tony Steuer has spent over 25 years in the life insurance industry. Steuer’s leadership roles include serving on the California Department of Insurance Curriculum board and the National Financial Educator's Council Curriculum Advisory Panel as well as having served as President of the San Francisco Chapter of the American Society of CLU & ChFC, President of the leading Life Insurance Producers of Northern California, and as a board member of the San Francisco Life Underwriters Association. Mr. Steuer is the author of Questions and Answers on Life Insurance: The Life Insurance Toolbook, The Questions and Answers on Life Insurance Workbook and The Questions and Answers on Disability Insurance Workbook - the first two were awarded the “Excellence in Financial Literacy (EIFLE) Award from the Institute of Financial Literacy. Steuer holds a Chartered Life Underwriter (CLU) designation and also holds the Life and Disability Insurance Analyst License, a designation that is held by less than thirty people in California.

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Questions & Answers on Life Insurance by Tony Steuer, CLU, LA, CPFFE is licensed under a Creative Commons Attribution 3.0 Unported License.

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