As a follow up to the recent post on viaticals, let’s look at ‘life settlements’ (not to be confused with structured settlements). The concept is basically the same, where an investor can purchase a life insurance policy from someone who might be willing to exchange the death benefit for a lump sum while they are alive. The difference is that a viatical is defined as such an arrangement where the life insured is diagnosed as terminally ill with only a few years left to live. A life settlement, on the other hand, applies to life-insureds who may have many more years left to live (i.e. a senior citizen with a slowly-progressing degenerative condition, or even just someone who is very old).
It’s big business in the States, mostly on an institutional level. It is pretty much prohibited in Canada save for a few provinces although Canadian investors can invest in packaged life settlements issued in the States.
Here is some of the terminology to be aware of:
Viator: The terminally ill life-insured who sells the policy to an investor.
Wet-Ink Policies: When a policy is applied for and immediately sold into the life-insurance secondary market.
Dirty-Sheeting: When a policy-holder falsifies information to make it appear that they have a terminal illness in the hopes of selling the policy to an investor based on shorter life-expectancy (and hence higher payout).
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