Life Settlement and Viatical Settlement Industry Terms and Definitions
Group Life Insurance
Group insurance covers a specific group of people, such as private sector employees, members of a professional association or union, and Federal employees including Military service. Group insurance is cheaper than personal policies because Group Insureds tend to be healthier than the general population, and carriers vigorously compete to secure Group business.
Convertible Term Insurance
Convertible Term Insurance allows a policy owner to convert the policy to a permanent life insurance policy. No evidence of insurability is required, and the new permanent policy will have the same rating as the old Term policy, such as Preferred or Standard.
A majority of carriers offer Universal Life as the conversion option, while others allow only the more expensive Whole Life. Every Convertible Term insurance policy has a deadline, beyond which the policy cannot be converted. Since a converted policy may cost 3 to 50 times more than the old Term policy, very few policies are converted.
Life and Viatical Settlement Funders prefer Convertible Term policies more than all other types of life insurance, combined. But, if the policy can no longer be converted, Funders will typically not buy them unless the Insured is terminally ill, and sometimes not even then. A good rule-of-thumb is to seek Life Settlement quotes at least 12 months before the conversion deadline.
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The Conversion Privilege is a benefit in some, not all, Term Life Insurance policies.
It allows the policy to be converted (exchanged) for a new permanent policy without proof of insurability and at the same insurance rating. The Conversion Privilege ends on a specific date.
Some Group Life Insurance Plans allow qualified employees who leave the company to convert their Group life coverage to a personal life insurance policy without proof of insurability. Such Group-to-personal conversions must take place within precise time-limits outlined by the Employer sponsoring the Group Coverage.
The Policy Owner is the party who legally contracts with a life insurance company to place coverage on one or more individuals.
The Owner possesses and controls all of the rights, title, privileges, and interest granted by a life insurance policy such as the right to name beneficiaries, sell, transfer, assign, surrender, withdraw cash values, change the face amount, convert to another type of insurance, or lapse the policy. The Owner may also to sell part of a Term policy and keep the balance.
The Owner may be one or more individuals, a trust, corporation, or other legal entity.
If the Insured was the Owner prior to becoming incompetent, full control of the policy might be in the hands of an individual granted Durable Power of Attorney or its state-authorized equivalent. If the Insured became incompetent before granting such power, he or she might have to be brought into the public court system to be evaluated and declared incompetent so that another party could take control of the policy.
If a life insurance policy has more than one Owner, all must legally agree to actions taken regarding the policy.
Some insurance companies and state statutes refer to the Policy Owner as the Policy Holder. Their definitions are identical.
Life Settlement Licensing and Regulations - Brokers and Providers
The business of insurance is primarily regulated by the states, not the Federal Government. Life/Viatical Settlements are regulated in 45 states and the territory of Puerto Rico. Most of these governments require Life Settlement Brokers to have a life insurance license, a unique Life/Viatical Settlement Broker license, or both. Life/Viatical Settlement Funders (Providers) must be licensed to buy policies from Policy Owners in these jurisdictions. Some Funders are licensed in all, others not.
Alabama, Missouri, South Carolina, South Dakota, Wyoming, and Washington, D.C. do not regulate Life or Viatical
Settlements. Thus, there are no licensing requirements for Brokers or Providers.
Bankruptcy Discharge and Life Settlements
Policy Owners with a pending Bankruptcy should defer submitting a Life Settlement Application until the Bankruptcy has been Discharged.
United States Bankruptcy Law provides for a discharge of many but not all kinds of debts. This relief from collection agencies and other entities grants the debtor a “fresh start.” Life Settlement Providers need a copy of the final Discharge for all bankruptcies in which the Policy Owner was involved, including business and personal bankruptcies of any Chapter. Funders must be certain that there are no pending bankruptcies because, otherwise, a Bankruptcy Trustee could intercept the funds from a Life or Viatical Settlement.
Divorce Agreements and Life Settlements
Policy Owners with a pending divorce should defer submitting a Life Settlement Application until the Divorce Agreement has been issued and certified by the appropriate County government.
Life Settlement Providers need to have a complete copy of the Policy Owner’s Divorce Agreement(s) to be certain there is no Assignment of Benefits or legal requirement to keep the policy in force. When a Divorce Agreement does contain one or more legally imposed changes to the policy, all must be removed before the Provider can safely make a binding offer to purchase the policy.