Insurance Planning and Risk Management - Viatical Settlements
According to the legal definition of terminally ill, an individual must be certified as having an illness that could result in death within how many months?
24 months.
The evidence required by the insurer may include all the following except:
Letter from a private doctor.
What are assignments?
Transfer of the ownership rights of life insurance policies from the policy owner to another person.
John has been diagnosed with cancer and has a life expectancy of 18 months. The proceeds John receives from a viatical settlement are income tax free. State True or False.
True. The proceeds of a viatical settlement are income tax free if the viator meets the legal definition of terminally ill, that is, he or she has a life expectancy of less than two years.
What is a viatical settlement?
Sale of a policy, using the absolute assignment provision, by a terminally ill person.
What is accelerated death benefit?
allows the early withdrawal of death benefits, in cases where insureds are terminally ill
What are the two types of assignments?
1. Absolute 2. Collateral
After purchasing a life insurance policy from a viator what does the viatical settlement firm do:
1. Becomes the beneficiary to the policy 2. Henceforth pays the premiums 3. Collects the face value of the policy after the viator dies
What is the proces of viatical settlement?
1. Diagnosis of terminal illness 2. Settlement offer 3. Cash payment 4. Beneficiary 5. Premium payment 6. Death proceeds
What are the disclosures under the viatical settlement model act?
1. Government benefits 2. Tax implications 3. Recission rights 4. Other alternatives These disclosures mude be made to the viator.
What is real property?
Ownership rights associated with land and objects permanently attached to land, such as buildings.
On which of the following factors does a viatical settlement offer NOT depend?
the beneficiary's relationship to insured.
What is absolute assignment?
1. It is the complete transfer of all ownership rights 2. It is used with viatical settlements 3. It requires the consent of an irrevocable beneficiary
What do property ownership rights include?
1. Possession 2. Control 3. Disposition
How is property classified?
1. Real property 2. Personal property
What are the forms of living insurance?
1. Terminal illness coverage 2. Catastrophic illness coverage 3. Dread disease coverage
Sandra Smith purchased a life insurance policy with an accelerated death benefit rider when she was 22 years old. At age 29 she was diagnosed as having AIDS. She desperately requires money to fund her medical treatments. What are the various options available for her?
1. Claim the accelerated death benefits of her policy 2. Take a policyholder loan secured by the cash surrender value of the life policy 3. Sell her policy to a viatical settlement company for cash She has three options: (1) She can obtain cash through a viatical settlement. This could be anything from 50 to 80 percent of her policy face value depending on her life expectancy. (2) She can claim accelerated death benefits that are typically 25 to 50 percent of the policies face value. (3) She can take a loan that will be limited to the policies surrender value that will be far lesser than the face amount. Sandra didn't have medical insurance. Therefor, claiming the benefit on her medical insurance is not a choice.
The viatical settlement offer depends on which factors?
1. Insured's life expectancy 2. The policy face amount 3. Future premium payments 4. Outstanding policy loans 5. Prevailing interest rates
The Accelerated Benefits Guideline requires which of the following to be disclosed?
1. Policy's death benefit 2. Policy loan amount 3. Cash values
What is a viatical settlement firm?
1. Specialized company, or group of investors, that purchases life insurance policies from terminally ill individuals for lump sum cash payment. 2. It is a private enterprise and not considered an insurance company.
Catastrophic illness coverage is also referred to as dread disease coverage. The provision typically covers which illness?
1. Stroke 2. Heart attck 3. Cancer 4. Coronary artery surgery 5. Renal failure
What is catastrophic illness coverage?
1. provides for accelerated death benefit payments on approximately the same terms and conditions as terminal illness coverage 2. insured must have been diagnosed as having one of several listed catastrophic illnesses
What is the Viatical Settlement Model Act?
1. serve to enable a viator to make a fully informed decision 2. ensure fair payments
The law's definition of terminally ill is that the individual must be ____________ by a physician as having an illness or physical condition that can reasonably be expected to result in death within 24 months or less.
Certified. The law's definition of terminally ill is that the individual must be certified by a physician as having an illness or physical condition that can reasonably be expected to result in death within 24 months or less.
What is collateral assignment?
1. Temporary transfer of only some policy ownership rights to another person. 2. Collateral assignments are ordinarily used, in connection with loans from banks or other lending institutions and persons.
What are the evidence required by the insurer to prove that the insured suffers from a terminal illness?
1. Certification by a physician 2. Hospital or nursing home records 3. Medical examination paid for by the insurer
Personal property, or choses are divided into which two types?
1. Choses in action 2. Choses in possession Personal property is divided into choses in possession that have tangible value and choses in action that have an intangible value.
A policy owned by a corporation on the life of a key employee may be sold for an amount ________ to its cash surrender value to the employee upon employment termination.
Equal.
Life insurance policies are not subject to the law on property because they possess some unique characteristics. State True or False.
False. Life insurance policies are property. Hence, they are subject to property laws.
A life insurance policy cannot be treated like other types of property and therefore its ownership rights cannot be transferred.
False. The assignment provision treats life insurance policies like other types of property and allows ownership rights to be transferred by the current owner to another person.
When Justin Myers resigned from his job, his employer offered to sell the key employee life insurance policy that the company owned on him. The employer was making use of which provision?
Absolute assignment The absolute assignment provision allows the complete transfer of the ownership rights of a life insurance policy, in contrast with collateral assignment that is a temporary transfer of partial rights. The viatical settlement is the sale of a policy, using the absolute assignment provision, by a terminally ill person. Reinstatement provision allows a person to renew his lapsed policy.
John is stricken with a fatal form of cancer. He's 36 and is expected to live for less than six months. He owns a life insurance policy that would pay $100,000 on his death. He approaches a viatical settlement firm and they offer him $80,000 for his policy. Around this time, Jane, who is of the same age as John, is diagnosed as having AIDS. Her life expectancy is less than two years. She too owns a life insurance policy with face amount of $100,000. What does the viatical settlement firm offer her?
Less. The viatical settlement firm offers her less for her policy. The reason for the lower offer amounts is that John has a far shorter life expectancy than Jane.
Which owners can use the accelerated death benefit?
Terminally ill person The accelerated death benefit allows early withdrawal of death benefits when an insured is terminally ill. There are several other provisions and riders that cover disability, surgery or long term care.
What is assignment provision?
Allows ownership rights in life insurance policies to be transferred by the current owner to another person.
What is lviing insurance?
Also known as accelerated death benefit because the insured person is entitled to receive benefits while he or she is still living.
