Life settlements are generally considered the sale of a life insurance policy to a third party by a Senior Citizen but the transaction of selling a life insurance policy actually began in the late 1980’s in the form of viatical settlements. Viatical settlements are commonly known as the sale of a life insurance policy by a person facing a terminal illness. Viatical settlements became better known in the 1990’s due to HIV and Aids.
Soon Cancer patients started to utilize the viatical settlement option to get treatments that were not covered by insurance and fight the disease. In the late 1990’s larger financial institutions took notice of viatical settlement transactions. These larger financial institutions recognized that the idea of a life insurance settlement could simply work for old age. A terminal illness was not really necessary for the transaction to still make sense financially for buyer and seller. At this time the transaction was called Senior Settlements. Over time it was determined that all were life insurance settlements and now are commonly referred to as life settlements.
The life settlement market was more than 100 years in the making. The life settlement market would not have originated without a number of events, judicial rulings and key individuals.
The U.S. Supreme Court case of Grigsby v. Russell, 222 U.S. 149 (1911) established a life insurance policy as private property, which may be assigned at the will of the owner. Justice Oliver Wendell Holmes noted in his opinion that life insurance possessed all the ordinary characteristics of the property, and therefore represented an asset that a policy owner may transfer without limitation. Wrote Holmes, “Life insurance has become in our days one of the best-recognized forms of investment and self-compelled saving.” This opinion placed the ownership rights in a life insurance policy on the same legal footing as a more traditional investment property, such as stocks and bonds. As with these other types of property, a life insurance policy could be transferred to another person at the discretion of the policy owner. This decision established a life insurance policy as transferable property that contains specific legal rights, including the right to:
- Name the policy beneficiary
- Change the beneficiary designation (unless subject to restrictions)
- Assign the policy as collateral for a loan
- Borrow against the policy
- Sell the policy to another party
This was good news for Policy Sellers and paved the way to allow for financing options for policy owners. Please contact us with any questions in regards to the Life Settlement Option.