[9][10] Viatical settlements are often sold by, or on behalf of, an insured who is terminally or chronically ill.[4][11] The policyholder may receive three to five times more than the surrender value for the policy.
[14][15] The U.S. Supreme Court case of Grigsby v. Russell, 222 U.S. 149 (1911) established and legitimized the sale of the right to receive life insurance benefits, ruling that a policy was private property which may be assigned at the will of the owner.
[17][18] Justice Oliver Wendell Holmes noted in his opinion that life insurance possessed all the ordinary characteristics of property, and therefore represented an asset that a policy owner may transfer without limitation.
[4] He stated in relevant part that “So far as reasonable safety permits, 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.”[4]The Supreme Court's decision set forth the fundamental principle upon which the viatical settlement and later, the life settlement industry were based: a life insurance policy is private property, which can be assigned at the will of the owner.
[21] At the time, the AIDS mortality rate was very high, and life expectancy after diagnosis was typically short.
Second, carriers now offer accelerated death benefit riders, which pay out if the insured is terminally ill, so there is no need for a settlement.
In 1993, the National Association of Insurance Commissioners (NAIC) adopted the first Viatical Settlement Model Act.
[25] In 2005, the life settlement industry was regulated in twenty-five states, providing seniors more value than the cash surrender option.
[4] [weasel words] Life insurers became concerned about individuals purchasing policies purely for speculative purposes.
It would allow seniors to pay for health care costs using tax-exempt proceeds from the sale of their life insurance.
For the year ending 2020, according to the Life Settlement Report by the Deal, there were 3,241 policies purchased with a total face value of $4.6B on the secondary market (from the original policyowner).
More institutional investors are funding life settlements and have invested billions of dollars in assets since the early 2000s.
By working directly with a provider or a broker, policy owners are not submitting through a financial advisor or other professional.
[34][35][40][41] Life settlement technology surrounding apis, apps and AI continue to improve the industries transparency for consumers.
It is the result of new technologies and more reliable data from systems that are utilizing prescription and clinical database searches.
This mitigates the risk of serious financial losses heightened by prior underwriting methodologies and increases profitability and investor demand for policies.
[49] However, GWG declared bankruptcy in 2022, and it has subsequently come under scrutiny by regulators, journalists, and attorneys who say it inappropriately marketed its investments to mom-and-pop investors.
[54] The Life Insurance Settlement Association (LISA) is a nonprofit created in 1994 to promote legislation and regulation in the industry.
The actuarial literature presents various approaches to pricing life settlements, including deterministic, probabilistic, stochastic, and fuzzy methods.
The actuarial literature presents various approaches to pricing life settlements, including deterministic, probabilistic, stochastic, and fuzzy methods.
The research papers, credited to Neil Doherty and Hal Singer, were released under the title The Benefits of a Secondary Market For Life Insurance.
[72] One of the most infamous viaticals cases involved the Mutual Benefits Corporation headed by Peter Lombardi and run by Joel Steinger.
The Florida company purchased life insurance policies from people with HIV, and sold shares in the future proceeds to 28,000 investors.