Insurance Settlements

There are several different types of insurance settlements: structured settlements, life settlements, and viatical settlements. An insurance settlement involves an insurance company making payment to a person for things such as bodily injury claims, cashing in a life insurance policy, personal injury judgments, etc.

Insurance Settlements: Structured Settlements

Often resulting from a personal injury claim, a structured settlement is a legal agreement involving an insurance company setting up an annuity to make payments to the claimant. This option can be advantageous because these payments are non taxable.

Insurance Settlements: Life and Viatical Settlements

As a person nears retirement age, their needs for life insurance change. No longer concerned about the need to replace income, a senior may choose to liquidate or "cash in" a cash value life insurance policy. If they do this with the insurance company, they are paid the cash value amount which is usually much less than the face value of the policy. A life settlement involves selling the policy to an investor for more than its cash value but less than the face value. The investor then makes payments on the policy, and cashes in the benefit upon the death of the insured.

Similar to life settlements, a terminally ill person may choose to liquidate their cash value life insurance policy in a viatical settlement to pay for expenses related to their treatment and care. This can greatly relieve the financial burden on the ill person and their family.

A Word of Caution

Because viatical and life settlements are a recent development, there are fraudulent investment firms taking advantage of private investors and insured’s. With few regulations to stop them, scam artists promise outrageous returns to investors, lie about the health of the insured, and pay very little to the insured for their policy. Before making a life or viatical settlement, both investors and insured’s should thoroughly investigate any company involved. Checking with state insurance commissioners and the Securities and Exchange Commission are good places to start.