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Life Settlements: Their Creation and History
Monday April 21, 2008 12:00AM | Click here to visit original article.
Since the dawn of the insurance industry, policyholders have looked for a way to get out of their policies that they no longer want or need. However, this service has been a long time coming for policyholders who need cash now in lieu of a death benefit. A 1911 judicial ruling established that life insurance policies are transferable by the policyowner, and this was a critical step forward for the industry. However, it was not until decades later that further progress was accomplished. Life settlements are actually a second-generation product that have evolved from the old viatical settlements that first became available in the 1980s. Ultimately, it was the AIDS epidemic that was responsible for the invention of viaticals. Patients who were dying of AIDS or other HIV-related diseases were facing enormous medical bills, and for many of them, the only source of cash from which they could reasonably expect to draw was their life insurance policies. This, of course, led to the creation of viatical settlements, which allow terminally ill policyholders to receive up-front cash settlements for their life policies. Viaticals were eventually offered to other types of terminally ill policyholders as well, despite widespread controversy and negative publicity. Viaticals were eventually exempted from taxation as income in 1995, and from capital gains tax in 1996. Of course, as viatical products and procedures matured and new drugs and other treatments for HIV/AIDS became available, the idea of offering this type of settlement to policyholders in general took root, and thus were born the modern life settlements that are being offered today. Finally, in 2000 the National Association of Insurance Commissioners created a model act for life settlements establishing good business practices for the industry. This act was finalized in 2001 and provided guidelines for licensing, marketing and all other business practices associated with life settlements. Finally, the Institutional Life Markets Association was created by investment banks in 2007. This group contains about 150 members that encompass about 95% of the life settlement business. Of course, this industry is still in its infancy, and many further changes and improvements are sure to come in the future. |
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