INSURANCE ISSUES AND VIATICAL SETTLEMENTS - PART III
As we review the study paper prepared by the Canadian Centre for Elder Law Studies on viatical settlements, we see that the authors note that a typical viatical settlement contains six steps.
Firstly, the holder of a life insurance policy initiates the transaction by filling out and submitting an application and providing any required supporting documentation to an interested company. The policyholder, him or herself, is typically referred to as the "viator" and the company is typically referred to as a "viatical settlement provider" or "VSP" (see page 3 of the report). To even be considered for a viatical settlement, a viator must have diminished life expectancy.
Secondly, the viator must submit medical and insurance records to the VSP for evaluation.
Thirdly, the VSP reviews the information and essentially determines whether or not the viator is eligible for a viatical settlement. This third step is, of course, a combination of insurance underwriting and medical analysis. In the U.S. experience, both whole life and term life insurance policies are acceptable, as are group life insurance policies. The expectation is that the policy is in good standing and that it not restrict assignment. Furthermore, it is expected that the policy has been in full force for at least two years.
Fourthly, the VSP will then present an offer to the viator. This offer will, of course, be an amount that is lower than the amount of the expected death benefit. The study notes (at page 4) that the offer is usually in the range of 50-85% of the face value of the death benefit.
Fifthly, the viator accepts the offer and completes the necessary contracts with the VSP. Sixthly, the transaction is completed by conveyance of the entitlement to receive the death benefit to the VSP and payment to the viator of the agreed upon compensation. From a business standpoint, interestingly, the VSP will typically assign the viatical settlement to another party through the services of a viatical settlement broker. Rather than holding on to the viators' policies until payment of the death benefit, VSPs will often assign the policy.
At page 5 of the report, the study notes that in many cases there is a process of fractionalization, whereby the policy is split into fractional interests for resale as an investment vehicle. In our next blog, we will look at the law in Canada in regard to viatical settlements.
All the best, Suzana and Ian. --------
