The concept of selling life insurance through life settlements or viatical settlements remains unfamiliar to more than half of Americans. This is unfortunate because these options can be financially attractive, especially for those with unnecessary or unwanted life insurance policies. Many individuals tend to surrender such policies back to the insurance company, which often results in receiving far less cash than they could obtain through a life settlement.
The Legality and Regulation of Life Settlements
1. Legality and Regulation
Life settlements are not only legal but also enforceable. These transactions are regulated at the state level in most parts of the country. While instances of life settlement fraud exist, they are no more prevalent than in other industries. In fact, most state regulations surrounding life settlements aim to protect policyholders, insurance companies, and advisors from fraud.
2. State-Specific Laws and Regulations
If you’re considering selling your life insurance policy, it’s crucial to understand the nuances of the laws and regulations in your state. The regulatory landscape can differ significantly from one state to another. Some states regulate only viatical settlements, while others govern both life and viatical settlements.
State-By-State Overview
1. States Without Life and Viatical Settlement Regulations
Six states in the U.S. have no regulations concerning life or viatical settlements. These states are Alabama, Hawaii, Missouri, South Carolina, South Dakota, and Wyoming. In these states, policyholders can sell their qualified life insurance policies without waiting periods or other restrictions. However, taxes may apply if the life settlement generates more cash than the total premiums paid.
2. States That Only Regulate Viatical Settlements
Michigan and New Mexico regulate viatical settlements but not life settlements. The primary distinction between the two lies in the age and health of the policyholder. Viatical settlements are typically available to those who are terminally or chronically ill, while life settlements are for policyholders over the age of 65 without these health conditions. Additionally, viatical settlements are often not taxable, while life settlements generally are.
3. States With Life and Viatical Settlement Regulations
Forty-two U.S. states regulate both life and viatical settlements. These states have various laws and regulations that govern the sale of life insurance policies.
The Role of Regulations
1. Types of Laws and Regulations
A significant portion of state regulation in life settlements involves disclosures. These requirements are designed to educate policyholders about their options. For example, many states mandate that policyholders receive all offers and counteroffers and notifications about how life settlements may affect tax liability and government assistance eligibility. Some states also require insurance companies to inform eligible policyholders that they can choose to sell their insurance policies instead of surrendering them.
2. Mandatory Disclosure Laws
Six states have mandatory disclosure laws that compel insurance companies to inform policyholders considering a lapse or surrender that they could pursue a life settlement instead. These states include Kentucky, Maine, New Hampshire, Oregon, Washington, and Wisconsin.
Waiting Periods
State-Mandated Waiting Periods
Some regulations are in place to safeguard insurance companies, such as state-mandated waiting periods. These waiting periods apply to new policies, preventing immediate sale through a life settlement. The waiting period varies from state to state, with Texas mandating a two-year waiting period, while Minnesota has a four-year waiting period. In contrast, 11 states prohibit life settlements until the policy is at least five years old.
Conclusion
Understanding life settlement laws and regulations in your state is essential when considering the sale of your life insurance policy. The specific rules and requirements can vary significantly, impacting your ability to proceed with a life settlement. It’s crucial to consult with experts and be aware of the legal landscape in your state to make informed decisions regarding your life insurance policy.
Get in Touch for Questions About Life Settlement Laws in Your State
At Moss Life Settlements, we have extensive experience handling life and viatical settlements all across the country. Our team is well-versed in the intricate rules of state regulations related to these transactions.
Furthermore, we’re happy to provide a free and no-obligation estimate of your policy’s value. Even if you’re unsure whether a life settlement is the right choice for you, it’s always valuable to know the worth of your financial assets. Feel free to reach out to us via our website at https://www.mossfinancialservices.com/ . We’re here to help!
