Life Insurance Settlements and Viaticals are known as a 'secondary market' for life insurance. All that means is that a second group is now involved in the buying and selling of life insurance - someone other than the original purchaser.

Viaticals and life insurance settlements have been with us for quite a few years but the industry is still in flux. Insurance regulators such as the National Association of Insurance Commissioners as well as the individual states mostly have legislation in place designed to protect consumers as well as funding companies however it continues to be a work in progress. Any viatical, life insurance settlement, or funding company you deal with should be properly licensed and knowledgeable about any laws in your state concerning these products.

Mechanically a life insurance settlement and a viatical are similiar. Both products involve a consumer selling their unwanted or unneeded life insurance policy. A funding company pays the consumer for the policy (typically between 30% to 80% of the face amount of the policy). The consumer receives their settlement normally in a lump sum. At this point the consumer is finished with the insurance policy - they can take their money and run. The funding company maintains the policy until the death of the insured at which point they receive the face amount of the insurance policy. There is uncertainty by the funding company as to when they will receive these funds (and it's assumed that the insured isn't in a huge rush to help them see a positive return) as well as how long they will have to pay the premiums on the policy. They thus provide the policy owner with some amount less than the full face amount of the insurance policy - as mentioned above, typically 30%-80% - with the remainder being the funding company's allowance for expenses and profit for the risk.