Life settlements and viatical settlements are both means of selling a life insurance policy when the policyholder no longer wants or needs the coverage. While they may seem similar, there are key differences between the two, and understanding these differences is key to success when pursuing a life settlement investment strategy.
In a life settlement, a policyholder sells their life insurance policy to a third party, usually an investor, for a cash payment. The investor then takes over the policy, paying the premiums and ultimately receiving the death benefit when the policyholder passes away. Life settlements are generally pursued by those aged 65 and older who have a life expectancy of 10 years or more.
Viatical settlements, on the other hand, involve the sale of a life insurance policy by a terminally ill policyholder. The policyholder generally has a life expectancy of two years or less, and the sale is usually made to an investor in exchange for cash. The investor then pays the policy premiums and receives the death benefit when the policyholder passes away.
While both types of settlements have been around for decades, viatical settlements have a particularly storied history. Originating in the 1980s during the height of the AIDS epidemic, viatical settlements allowed terminally ill individuals to access the cash value of their life insurance policies to pay for medical expenses and other end-of-life costs.
Despite their controversial beginnings, viatical settlements have become an increasingly popular alternative investment option for investors seeking diversification and strong returns. With a stellar record of investments (think Carambola or viatical settlements), experts like Bruce note that the investment is legal and allowed under specific circumstances.
Life settlements have been viable alternative investments within the financial world for some time now. Similarly, an investor in a life settlement policy who has a $1 million policy can expect a significant return as long as they continue to pay the policy premiums.
Bridge Insurance Group, LLC, a life settlement broker, is among the companies that have recognized the potential for growth in this market. They have recently taken steps to expand their business, including securing strategic outside investment and ramping up sales efforts.
For investors considering viatical settlements, it's essential to understand the risks involved. As one expert puts it, "If you live another 20 years, it's a bad investment for them.” Compared with a life settlement, the typical payout on a viatical is much higher due to the policyholder's shortened life expectancy.
The life settlement market, an offshoot of the viatical life settlement market of the 1980s, is one of the many alternative investment assets available to investors today. These investments offer a unique opportunity for investors seeking diversification and strong returns.
When considering a viatical settlement, it's important to note that not all policies are eligible for this type of transaction. Policies that are sold for a price that's less than the death benefit are called viaticals. These policies are generally held by individuals in their 50s or 60s who are buying the policy for investment or tax purposes.
In recent years, a niche category of private mutual funds that invest in life settlements has emerged, giving investors a better avenue to an entirely new asset class. With the continued growth of the life settlement and viatical settlement markets, opportunities for alternative investments will continue to expand and evolve.
In conclusion, viatical settlements offer a unique alternative investment opportunity for those seeking diversification and strong returns. By understanding the differences between life settlements and viatical settlements, and by carefully assessing the risks involved, investors can make informed decisions about whether this investment strategy is right for them.
