Your Life Settlement Options – Disclosed!

At Mason Finance we believe you have the right to know about all the options available to you when considering a change in your life insurance coverage.


According to the Life Insurance Settlement Association, more than 90% of life insurance coverage lapses with no death benefit ever paid out. Consumers receive anywhere between four to seven times more cash through life settlements transactions than they would have had they surrendered their policies [See 2010 US Government Accountability and 2014 London Business School industry reports].


Why aren’t you aware of your life settlement options?

Life insurance carriers’ anti-consumer practices

To protect their financial interests life insurance companies avoid notifying policy holders of their options. A lapsed policy means that no death benefit is paid out and the premiums paid go straight to the insurance carrier’s bottom line.


Life insurance carriers are known to prevent insurance agents from discussing life insurance settlement options with customers. Insurance companies will often retaliate and forcefully silence agents who have a fiduciary responsibility to their customers.


These disturbing practices are not limited to life settlements. Life insurance carriers consistently keep policy holders in the dark about their options. These include accelerated death benefits, death benefit reductions, and loans against the policy’s cash value.

State legislators are catching up

Despite the life insurance industry’s decades-long lobbying efforts, state legislators across the country are finally mandating disclosure.


Recognizing the “Senior’s Right to Know” movement, legislators from eight states have enacted varying forms of consumer disclosure acts. Each one of these acts mandates insurers to notify policy holders of their options if they face lapsing or surrendering their policies.

These disclosure acts are now in place in Washington, Oregon, Maine, New Hampshire, Kentucky, Georgia, Florida and Wisconsin. While similar laws have been proposed in Texas and Rhode Island.


You can track legislative progress using our tracker below.


Mason Finance is tracking Your Right To Know

Life Settlement Options Disclosure

Source: Mason Finance Inc.

Looking towards the future

Insurance carriers will continue their efforts to limit access to information around alternatives to lapsing or surrendering life insurance policies. But we can work to make these anti-consumer practices disappear for good.


In 2016, the state of Georgia was the first state to pass a law that prevents life insurance companies from terminating, penalizing or otherwise silencing life insurance agents who inform consumers of their life settlement options.


Across the country, several lawsuits have been filed by individuals against their insurers over failure to disclose alternatives to lapsing or surrendering a policy. In California, a lawsuit filed in January 2016 alleges that concealing life settlement options is a common practice by the life insurance industry. This lawsuit should help drive legislative change in the near future.


What does this all mean to you?

You are now armed with the knowledge to check your options before lapsing or surrendering a life insurance policy. If you no longer need your life insurance policy or if you simply can’t make your premium payments, a life settlement may be the right option for you.


Check out our life settlement calculator to find out what your policy could be worth.



 Bills & statutes introduced/in-progress:

  • Rhode Island: HB 5628 Passed State House in June 2017 –  Pending passage in Senate
  • Texas: HB3008 Passed House in May 2017 – Engrossed in Senate

 Bills & statutes enacted/signed:

Viatical Settlement Definition

Viatical Settlements and Life Settlements: What’s the Difference?

Viatical settlement definition


In order to understand the difference between a viatical and a life settlement, it is important to fully understand the definition of a viatical settlement. Viatical settlement is the term used to describe a life insurance settlement where the insured person is either terminally or chronically ill.


In this sense there are actually 2 types of viatical settlements. The first is for someone who is terminally ill. Terminally ill is defined as having a life expectancy of less than 24 months. The second is for someone who is chronically ill. Chronically ill is someone who can no longer perform two or more of the following activities; eating, using the toilet, bathing oneself, or dressing oneself. Chronically ill also describes someone who requires substantial supervision to protect him/herself from threats to health and safety.



Life insurance settlement definition


In a viatical or life settlement transaction the life insurance policy holder transfers ownership to a life insurance buyer, also known as a provider. The former policy holder is no longer responsible for the policy premiums and receives a cash payment that’s larger than the surrender value of the policy. The provider is now responsible for all expenses related to the policy.


The key distinction between a life settlement and a viatical settlement is whether the insured is terminally/chronically ill or not.



Why does it matter?


The distinction between a life settlement and a viatical does not generally affect the transaction process but it does have very specific tax consequences.


For an insured person that is terminally ill, the viatical settlement payout is entirely tax free.


For an insured person that is chronically ill, the viatical settlement payout is tax free only for proceeds used to pay for long-term care services that are not compensated by insurance. Other uses of proceeds are subject to taxation.


For an insured person that is neither terminally nor chronically ill, taxation of the payout is a bit more complicated and we look forward to covering that in our next blog post.


Mason Finance does not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.