What does converting a policy mean? It means the policy is sold as a “Life Settlement” for a percentage of the death benefit and the funds are placed in a protected Benefit Account. Monthly payments for long term care services are deducted directly from the benefit account.
Life insurance is legally recognized as an asset and your property ownership rights are guaranteed by a 100 year old Supreme Court decision. The Long Term Care Benefit Plan is a unique financial option for seniors because all health conditions are accepted, and there are no wait periods, no care limitations, no costs to apply, no requirement to be terminally ill, no premium payments and no loan to pay back.
What is a Life Settlement?
An important step in converting a life insurance policy into a long term care benefit is a transaction called a life settlement or viatical settlement.
A life or viatical settlement is the sale of an existing life insurance policy to a third party for more than its cash surrender value, but less than its net death benefit. In exchange for paying the purchase price to the seller as well as assuming responsibility for future premiums, the buyer will receive the full death benefit when the original insured dies.
Most states regulate life and viatical settlement transactions and many of the specific regulations in place are intended to protect individuals that are selling their insurance policies. For example, in most states, the seller of an insurance policy through a life settlement can cancel the transaction by returning the purchase price within 15 days of receipt. More than 40 states have regulations in place regarding the sale of life insurance policies to third parties.
What is the difference between a Life Settlement and a Viatical Settlement?
Often times, the terms “Life Settlement” and “Viatical Settlement” are used interchangeably. However, some state regulations use the term Viatical Settlement to refer to cases where the person covered by the insurance policy is terminally ill or has a shorter expected life span (e.g., less than two years). For those states which make the distinction, Viatical Settlement transactions may be subject to additional regulatory requirements (e.g. minimum pricing relative to the death benefit).
What is a Provider?
Life Settlement Providers are private companies that are licensed by state governments to serve as the purchaser in a life settlement transaction. Providers are responsible for ensuring that each transaction complies with applicable regulations. The top Providers in the industry fund many transactions each year and have in-house compliance departments to carefully review transactions. The standard forms used by a Provider for transactions in a particular state are usually subject to review and approval by the regulator in that state.
Life Care Funding works with several Providers that are national in scope and appropriately licensed. After the life or viatical settlement transaction is completed, the Provider will usually transfer the policy to Life Care Funding at a later stage.