Since its beginning in the 1980s, the life settlement industry has continued to be a viable source for those wanting to sell their life insurance policies. However, even before the birth of the life settlement industry, the sale of life insurance policies was made legal during a famous U.S. Supreme Court ruling in which Justice Oliver Wendell Holmes deemed life insurance policies as property. He stated the following in support of his judgment:
“…it is desirable to give to life policies the ordinary characteristics of property. To deny the right to sell except to persons having such an interest is to diminish appreciably the value of the contract in the owner’s hands.”
Following this ruling, it became legal and acceptable for life insurance policies to be borrowed against, sold, transferred, and used as collateral just like all other forms of property.
Even so, the life settlement industry as we know it today, did not become as useful until the 1980s when an AIDs epidemic surfaced within the U.S. Because there was no cure, or effective treatment methods back then, those who contradicted the terminal disease were faced with short life expectancies, which usually amounted to no more than a few years.
As a result of the AIDs epidemic,viatical settlements were introduced. Although they are similar to life settlements, one of the main differences between the two is that viatical settlements are reserved for those who are “terminally or chronically ill”, and who have a life expectancy of two years or less.
In the beginning, people with AIDs benefited from the viatical settlement process as they were able to sell their life insurance policy to a third party in exchange for a lump sum of cash.
However, as medical technology advanced and more effective treatment options were introduced, AIDs patients began to live longer and longer—exceeding the two year limit that the viatical settlement process afforded them. Subsequently, the life settlement industry was created.
Unlike the terms of viatical settlements, the requirements for life settlements are a bit more lax. For example, sellers are not required to have a life expectancy of two years or less, nor do they have to have a terminal or chronic illness in this case. The basic parameters for selling a life insurance policy is that the policy holder is 65 years of age or older with a policy that has a face value of $100, 000 or more, and that has been in force for at least two years prior to the start of the sell. However, each case is evaluated on a case by case basis.
Decades after the birth of life settlements, the industry is beginning to thrive more than ever. For years now life settlements have acted as a crutch for those who could no longer afford their life insurance premiums or who no longer had a need for their policies.
It is important to keep in mind that the requirements outlined above are meant to establish a general parameter, and that each case is evaluated individually as laws may vary from state to state. Therefore, be sure to contact one of our advisors, even if you fail to meet the basic requirements listed above. To learn more about the life settlement process click here or give us a call at 877-303-9777.