Life
Insurance Settlement Glossary
The definitions here are generic. Specific
states may have differing definitions in law.
1035 Exchange
- A tax-sheltered exchange of cash value from
one life insurance policy to another. This allows an individual
to avoid capital gains or losses in the first policy as
long as the second policy is of greater or equal cost. Beneficiary
- The person(s) named by the owner of the policy
to receive the life insurance proceeds upon the death of
the insured.
Broker (Life
Settlement Broker) - This
means a person who, on behalf of an policy owner and for
a fee, commission or
other valuable consideration, offers or attempts to negotiate
sales contracts, between an owner and one or more providers,
the subject of which is a Life Settlement. A broker represents
only the owners and owes a fiduciary duty to the owner to
act according to the owner’s instructions, notwithstanding
the manner in which the broker is compensated. A broker does
not include an attorney, certified public accountant or financial
planner retained in the type of practice customarily performed
in their professional capacity to represent the owner whose
compensation is not paid directly or indirectly by the provider.
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Cash
Value/Cash Surrender Value - The amount that is available
in cash for loans and/or withdrawals. Accessing cash surrender
value may reduce the death benefit and may increase the
risk of lapse. Withdrawals may be subject to surrender charges
and could have a permanent effect on the cash value. If
the
policy is surrendered, the cash surrender value is paid
to the policy owner.
Chronically Ill
- This means (1) being unable to perform
at least two activities of daily living (i.e., eating,
toileting, transferring, bathing, dressing or continence),
or (2) requiring
substantial supervision to protect the individual from
threats to health and safety due to severe cognitive
impairment, or (3) having a level of disability similar to
that described
in (1) as determined by the Secretary of Health and Human
Services.
Consumer / Policy
Holder - The consumer is
an individual who has purchased a policy and now wants
to sell it.
Unlike most markets, consumers in the life settlement
industry
are sellers.
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Convertible Term
Insurance - Term insurance that can
be exchanged (converted), at the option of the policy
owner
and without
evidence of insurability, for a permanent insurance
policy.
Escrow Companies
- An Escrow Company is a neutral
third party that by a legal arrangement receives
the money
to be held
in a trust pending a contingency or the fulfillment
of conditions in a contract such as the payment
of a purchase
price. Upon
that event occurring, the escrow agent will deliver
the asset to the proper recipients and payment
to the seller.
Face Amount - The amount stated on the face of the policy
that will be paid in case of death. It does not include additional
amounts payable under accidental death or other special provisions,
or acquired through the application of policy dividends.
Financing Entity
- In the life settlement industry, a firm
contracted to provide the funds necessary to finance a settlement.
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Insured - This term means the person covered under the
policy being considered for viatification.
Investors - Entities that puts forth funds toward a pool
of policies with the expectation of a financial return
from the maturity of policies.
Key Person Life
Insurance - When one has a key person in
a business without whom the business would suffer financially,
key person life insurance is often purchased which helps
to reimburse the company for the business loss incurred by
the death of this person.
Life Expectancy
Company (LE) - Actuarial and physician experts
who apply probability theory, actuarial methodology, and
medical analysis using the records of the insured to calculate
the probable life expectancy of an insured.
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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.
Life Settlement Broker
(Broker) - This means a person who,
on behalf of an policy owner and for a fee, commission
or other valuable consideration, offers or attempts to negotiate
sales contracts, between an owner and one or more providers,
the subject of which is a Life Settlement. A broker represents
only the owners and owes a fiduciary duty to the owner
to
act according to the owners instructions, notwithstanding
the manner in which the broker is compensated. A broker
does not include an attorney, certified public accountant
or financial
planner retained in the type of practice customarily performed
in their professional capacity to represent the owner whose
compensation is not paid directly or indirectly by the
provider.
Life Settlement
Provider (Provider) - A firm specializing
in purchasing life insurance policies in the Life Settlement
market. Providers normally resell the insurance policy
to institutions called financing entities. A provider
works on behalf of the financing entities that they represent.
Their objective is to purchase your policy for the lowest
price possible and maximize the return on investment
for
their investors. Providers have the duty to keep the
policies in-force with money from the financing entities.
Sometimes,
this job is outsourced to a contracted tracking company.
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Maturity
of Policy - The policy matures, or pays a claim,
when the insured dies and upon presentation of evidence
of the death and the validity of the claim to the insurer.
Permanent Life
Insurance - Any form of life insurance except
term; generally insurance that builds up a cash value, such
as whole life and universal life. Coverage can last a lifetime.
Policy Owner – The person who owns a life insurance
policy. This is usually the insured person, but it may also
be a relative of the insured, a partnership or a corporation
Premiums – Payments to the insurance company to keep
a policy in force.
Producer - A person who sells life insurance.
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Provider
(Life Settlement Provider) - A firm specializing
in purchasing life insurance policies in the Life Settlement
market. Providers normally resell the insurance policy to
institutions called financing entities. A provider works
on behalf of the financing entities that they represent.
Their objective is to purchase your policy for the lowest
price possible and maximize the return on investment for
their investors. Providers have the duty to keep the policies
in-force with money from the financing entities. Sometimes,
this job is outsourced to a contracted tracking company.
Secondary Market
- The financial market for the trading
of securities that have already been issued in an initial
private or public offering. Alternatively, secondary market
can refer to the market for any kind of used goods, such
as life insurance policies.
Terminally Ill - Having an illness or sickness that can reasonably
be expected to result in death in twenty-four (24) months
or less.
Viatical Settlement - (from the Latin "Viaticum" (vi-at-i-kum),
historically, an allowance for traveling expenses or provisions
for a journey.) Historically, the proceeds from the sale
of a life insurance policy to a third party by a terminally
ill individual.
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