A financial transaction wherein there is a sale of an unneeded or an unwanted policy by its owner to a third party at a price higher than the cash surrender value. Once the life settlement procedure is made it is the duty of the new owner for the payment of subsequent insurance premium and it would be the purchaser of the life insurance policy who would receive all the benefits of the insurance policy on its maturity. Life insurance settlements have contributed to a significant development for the owners of the life insurance policy because the policy owners can have a price which is higher than the cash surrender value or the amount of money which is offered by the insurance company to the policy owners at the time when they would like to sell the unwanted policy.
In the market scenario, life settlement act as an effective option of investment for the people above 65 years of age possessing policies of high net worth. Research studies have reported that 20% of the policies settled under the life settlement process are provided a market price which is higher than the cash value of the insurance policies.
From the above explanation an overview of what is life insurance settlement can be understood and now the rest of the article is going to explain some of the terms which are important to be understood in understanding the life insurance settlement.
Life Insurance or Cash Surrender Value: Cash surrender value is the amount the insurance company would be willing to pay to the owner of an insurance policy incase the owner of the policy has decided that he does not require the particular insurance policy anymore. In such a case the owner of the policy would get a cash surrender value which is much lower than the face value of the policy and even lower than the options like life insurance settlement.
Viatical Settlements: This is another option which is available to the owners of the insurance policy owners like the life insurance settlement. A viatical settlement is a process wherein the owner of the policy can sell his life insurance policy before its maturity. Viatical settlements are particularly meant for the insurance policy holders who possess a catastrophic or a life threatening disease or illness. Thus when the insurance policy is sold to the company, they would become the beneficiary of the policy on its maturity.
Senior life settlement: Senior settlement is a process wherein the senior citizens can sell their unwanted life insurance policies to the companies before the maturity of their insurance policies. The insurance policies are sold at a higher price than in the other case if it is sold to the insurance company.
Thus Life settlement insurance companies have contributed to the creation of a secondary market for the owners of the policies who cannot wait for the maturity of the policy and it also forbids the owners of the policy to acquire a price higher than the cash surrender value.