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History / Resources

History of Life Settlements

Life settlements, as an industry, may be traced back to the 1980’s and the onset of the AIDS epidemic in the United States. In the 1980’s, AIDS victims faced an extremely short life expectancy. Often, these individuals owned life insurance policies they no longer needed. It was under these circumstances that the first viatical settlements occurred. What is a viatical Settlement?

Simply put, a viatical settlement occurs when a terminally or chronically ill individual (less than two years life expectancy) sells his/her life insurance policy to a third party for a lump sum. The third party becomes the new owner of the policy, pays the monthly premiums, and receives the full benefit when the individual expires.

As medical advancements made progress in the lives of those living with AIDS, the life settlement Industry emerged. What is a life settlement?

In a life settlement transaction, the policy owner is usually at least 65 and not terminally or chronically ill. Just as in a viatical settlement transaction the individual sells the policy to a third party for a lump sum. Usually, the amount that the individual receives is more than the cash surrender value offered by the life insurance company.

Learn more about the history of Life Settlements

Glossary of Terms

Accelerated Death Benefit A policy provision or rider that lets you collect part of your death benefit before you die. If you have a terminal illness, the policy advances you a specified part of your death benefit to pay medical bills or other expenses, then the amount is subtracted from the death benefit your beneficiary receives.

Accidental Death A provision or rider that promises to pay more (usually double) if you die in an accident. Also known as double indemnity.

Actuary A mathematics expert who applies probability theory to the business of life insurance and is responsible for calculating premiums, policy reserves and other values.

Administrative Fee Charges some policies deduct from cash value accumulation each year.

Annuitant A person who receives an income benefit from an annuity.

Annuity A contract purchased through an insurance company, usually to accumulate funds that can be used after retirement.

Assignment Giving rights under the insurance policy to someone else. You can assign beneficiary rights or policy ownership.

Automatic Premium Loan A provision in a policy that authorizes the insurance company to use money from your cash value to pay premiums.

Beneficiary The person you designate to be paid a death benefit when you die. A policy may have one or more beneficiaries.

Burial Policy A policy with a relatively small death benefit, intended to cover your funeral and burial expenses.

Cash Value The savings portion of a life policy. When your premium payments are more than the cost of insurance, the excess goes into a cash value account and draws interest.

Certificate The evidence of coverage received by persons insured through a group life policy.

Death Benefit The money that a life insurance policy promises to pay your beneficiary when you die.

Decreasing Term A term life policy whose death benefit goes down each year.

Dividends When a company collects more money from policyholders than is needed to cover the cost of insurance.

Endowment A cash value policy that sets a specific time at which the cash value will equal the death benefit. If you buy a $10,000, 20-year endowment policy, you will immediately be insured for $10,000. If you are still living at the end of 20 years, you will receive $10,000 in cash.

Face Amount The sum a policy promises to pay when the insured person dies, or at the maturity of the contract.

Family History Information about medical or mental problems of your parents and other family members. Companies may charge you higher premiums or reject you if your family has a history of cancer, heart attacks, or such diseases as Huntington’s.

Genetic Testing Using modern scientific analysis of your blood to determine whether you have any genetic defects that might make it more likely that you would die earlier than the average person. Ohio permits insurance companies to use the results of genetic testing for life insurance policies, but only a few companies require genetic testing.

Grace Period The time after an insurance premium is due during which the premium can still be paid with no interest charged, and coverage remains in force. This period is usually 30 to 31 days.

In Force A policy is in force when all conditions have been met to establish or maintain the company’s obligation to pay if you die.

Insurable Interest In order to be the owner and beneficiary of a life insurance policy, there must be some relationship to the insured person.

Insured This term means the person covered under the policy being considered for viatification.

Lapse The termination of an insurance policy as a result of failure to pay the premium.

Life Expectancy The number of months the individual insured under the life insurance policy to be viaticated can be expected to live as determined by the viatical settlement provider considering medical records and appropriate experiential data.

Life Settlement A financial transaction in which a policy owner possessing an unneeded or unwanted life insurance policy sells the policy to a third party for more than the cash value offered by the life insurance company. The purchaser becomes the new beneficiary of the policy at maturation and is responsible for all subsequent premium payments.

Reinstatement Period Restoration of a policy that has lapsed due to non-payment of premium after the grace period has ended. The reinstatement period in life insurance is 3 years from the premium due date.

Rider An addition or amendment to an insurance policy.

Risk The likelihood that you will die while insured.

Settlement Option How a beneficiary receives payment of the death benefit.

Suicide Clause A life insurance policy will not pay a death benefit if you commit suicide within the first two years after you buy the policy.

Term Life The simplest form of life insurance, it generally offers no cash value feature. You pay a premium and the company promises to pay your beneficiary if you die.

Terminally Ill Having an illness or sickness that can reasonably be expected to result in death in twenty-four (24) months or less.

Underwriting The insurance company’s process for determining whom it will insure.

Viator (vi’-a-tor) n. A terminally ill person who sells his or her life insurance policy to a third party and receives a lump sum cash payment.

Waiver of Premium A provision that suspends your obligation to pay premiums when you are disabled or you meet some other policy requirement. This is a common feature in life insurance polices.

Whole Life Life insurance with a savings feature. Premiums generally are the same (level) every year. When you are young, your premiums are more than the cost of insuring your life at that time. The excess amount accumulates and resembles a savings account, called cash value. This excess is used by the company to insure you later in life, when your level premium is no longer enough to cover you.

Read more glossary of terms

Life Settlement Model Act

The National Conference of Insurance Legislators (NCOIL) adopted a the Life Settlements Model Act on November 16, 2007. LISA endorsed that Act upon its adoption. The current Model is available at the NCOIL site, and a copy can be obtained for $50. If you are interested in updates about the NCOIL Model, please contact us via e-mail at NCOIL is a body representing legislators from many states with a particular interest and focus on insurance regulation.

The NAIC Viatical Settlements Model Act

The National Association of Insurance Commissioners (NAIC) passed a Viatical Settlements Model Act Revision in June of 2007. That Model is highly controversial and opposed by LISA. Our principle objections lay in the area of the retraction of consumer rights and a number of areas in which we feel that the model damages the interests of participants in the insurance industry and makes life settlements difficult for consumers. We also are concerned about language which may conflict with other areas of law, especially securities and banking law. We have traditionally opposed minimum pricing provisions which have been proven to be unworkable. The Model Legislation has been enhanced with a Model Regulation, which was revised in 2012 and adopted in 2013.

Learn more about the Life Settlement Model Act

Life Insurance Settlement Assoc.

Established in 1994, the Life Insurance Settlement Association is the oldest and largest trade organization in the life settlement market. Its goal is to advance the highest standards of conduct for market participants and to promote education and awareness to consumers, investors, and public officials.

LISA represents more than 85 member firms including 2,500 professionals from life settlement brokers, life settlement providers, institutional investors, life settlement servicers, and other service providers. Learn how to cash in your life insurance policy and take control of your retirement planning today with members of The Life Insurance Settlement Association.

The life settlement industry is a dynamic marketplace representing the needs of life insurance policy owners and we are proud to serve as its leading voice.

Learn more about the Life Insurance Settlement Association


The Institutional Life Markets Association, Inc. (ILMA) ILMA is a not-for profit trade association focused on the longevity and mortality-related marketplace. By creating innovative capital market solutions, ILMA members seek to expand consumer choice in one of their most important assets – their life insurance. The Association is a leader in establishing best practices and in raising awareness about this growing and vital industry.

ILMA’s mission is to expand and apply capital market solutions in life insurance, educate consumers that their insurance may be a valuable asset, expand consumer choices about how to manage it, and support the responsible growth and regulation of the industry. We believe that expanded consumer choice and full disclosure of all fees is good for the consumer and for the industry.

Learn more about the ILMA mission and who they represent.

Regulators: NAIFA

The Regulators: NAIFA (National Association of insurance and Financial Advisors), was founded in 1890 as The National Association of Life Underwriters (NALU), NAIFA is one of the nation’s oldest and largest associations representing the interests of insurance professionals from every Congressional district in the United States. NAIFA members assist consumers by focusing their practices on one or more of the following: life insurance and annuities, health insurance and employee benefits, multiline, and financial advising and investments. NAIFA’s mission is to advocate for a positive legislative and regulatory environment, enhance business and professional skills, and promote the ethical conduct of its members.

Learn more about the NAIFA and their members.

State Regulations

For your convenience, LISA provides a resource which allows you to search state-by-state and federal viatical and life settlement legal resources. The legal resources available on allow you to research your state’s statutes, key definitions, regulations, and disclosures.

Learn more of LISA State Regulation Reports