When considering a viatical settlement, it is important to understand all the terminology involved in the process. This viatical settlement glossary provides definitions for key terms and definitions related to viatical settlements. By understanding what these terms mean, you will be better equipped to make an informed decision about whether or not a viatical settlement is right for you.
Accrued Interest: The interest that builds up on a policy’s cash value over time or the debt if a policyholder takes out a loan against their policy.
Annuity: An annuity is a contract between an insurance company and the policyholder in which the insurer agrees to pay out a set amount over time.
Beneficiary: The beneficiary is the person or persons named in the policy who will receive the death benefit upon the policyholder’s death.
Broker: A broker is an individual or company that arranges to purchase and sell viatical settlements.
Carrier: The insurance company that issued the life insurance policy.
Cash Value: This is the amount an insurer will pay out if a policyholder chooses to surrender their life insurance policy.
Cash Surrender Value: The cash surrender value is the amount of money that the life insurance company would give to the policyholder if they ended their policy today.
Conversion Right: Eligible term life insurance policies can be converted into permanent life insurance that accumulates cash value.
Coverage Period: The duration of which a life insurance policy will cover the policyholder.
Death Benefit: The money beneficiaries will receive after the policyholder’s death, typically given as an untaxed lump sum payment. The death benefit may also be known as the policy’s “face amount.”
Direct Response: A process by which an insurance company will sell life insurance policies directly to consumers without the involvement of agents or brokers.
Disclosure Statement: A document that explains the ins and outs of a life insurance policy to its recipient.
Evidence of Insurability: Documentation that is required to demonstrate one’s eligibility for a life insurance policy.
Face Amount: The total amount of money a policyholder’s beneficiaries receive upon death. Also known as the “death benefit.”
Fixed Amount Option: This option allows death benefit proceeds from a life insurance policy to be paid through a series of fixed payments. The payments will continue in fixed increments until the base proceeds and earned interest runs out.
Free Look Provision: The free-look period (usually 10-30 days) after an individual buys a policy, during which they can decide whether or not to keep it.
Grace Period: A policy’s grace period is typically one month when it will remain active even if you miss a payment.
Insurance Policy: A contract that includes the coverage details like policy length, which is included in the policy, and terms of death benefit between the insurance carrier and policyholder.
Insured: The person who is covered by the life insurance policy.
Insurer: The company that issues the life insurance policy and pays the death benefit.
Lapse: If you do not pay your premiums to keep your policy active, this is called a lapse. Most policies have a 31-day grace period where coverage is still in effect, but after that point, you will need to reapply and may be responsible for unpaid premiums.
Life Expectancy: The projected lifespan of the policyholder, according to medical records.
Life Settlement: A transaction where the policyholder sells their life insurance policy to a third-party buyer in exchange for a lump-cash sum. The new buyer is responsible for paying premiums over the remainder of the insured person’s life and collects the death benefit after they die.
Policy Owner: The life insurance policy owner is not always the insured. The insured may sell their policy to a third party through a life settlement, making that person the new policy owner.
Premium: The costs associated with maintaining a life insurance policy throughout the insured individual’s lifetime will vary depending on several factors, such as policy type, age, health status, and family history. Premium payments can be made either monthly, quarterly, semi-annually, or annually.
Provider: An insurance company or provider offering life insurance policies.
Reinstatement: If you miss a payment on your life insurance policy, you may be able to re-activate the policy. However, this depends on the insurer and how long the policy has lapsed. In some cases, starting a new application for coverage may be required.
Surrender: Giving the life insurance policy back to the provider, usually in exchange for a small lump-sum payment.
Term Life Insurance: A term insurance policy is temporary and only provides coverage for a set number of years. The policyholder can usually renew at the end of the term, but it may be more expensive. Term policies do not have a cash value that builds up over time.
Underwriter: The underwriter is the individual who reviews a person’s application for life insurance coverage and decides whether the individual is insurable and at what rate they should be charged for coverage. An underwriter will also review individuals selling a life insurance policy to determine its worth.
Underwriting: The process used to evaluate a person applying for insurance to determine the premiums for the individual is also used when an individual sells a life insurance policy through a life or viatical settlement. This assessment tells potential buyers how much the policy should be sold for.
Universal Life Insurance: A type of life insurance that protects term policies with permanent cash value.
Variable Universal Life Insurance: Permanent insurance that offers several sub-accounts with an investment component. The policyholder can choose which accounts to invest in through their premium payments.
Viatical Settlement: A transaction where someone who is terminally or chronically ill sells their life insurance policy to a third party in exchange for receiving a lump sum of cash. The buyer agrees to pay the premiums and will receive the death benefit when the policyholder passes away.
Whole Life Insurance: A life insurance policy that covers someone for their entire lifetime. These policies often build up cash value over time, which can be used to help with retirement or leave behind a larger death benefit.
At American Life Fund, we can help you understand the different types of viatical settlement terms covered in this glossary. We have experienced viatical settlement agents who can answer any questions you may have and provide guidance in selling your life insurance policy for cash. Contact us today to get started!