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VIATICAL SETTLEMENTS: WHEN AN EXECUTIVE RETIRES By: Stephen M. Watson, Esq. Viatical settlements are the sale of existing life insurance policies at a percentage of the death benefit that will be paid when the insured under the policy dies. Often a policyholder will find that they have more of a need for a portion of the money now, than they do for the death benefit payout later on. How does this service fit in for the retiree? A life insurance policy can represent hundreds of thousands of dollars, or even millions, in assets. When you retire, don't let that potentially lucrative asset go to waste. Consider this: many executives are offered their key person or buy/sell agreement policies upon retirement. The business no longer needs the policy, so it offers the policy to the retiree. Often, however, the offer to take over the policy is declined because the retiree does not need it, or does not want to undertake the premium payments that would accompany acceptance of the policy. In these instances, the business often simply cashes the policy in for its cash surrender value. But there is a better planning opportunity for both the business and the retiree. First, for the retiree, he or she should contact a viatical settlement broker before accepting or rejecting the offer to take over the policy. That way, the retiree can get a quote for the sale of the policy before making a decision, and, if the quote is favorable, sell the policy and make money, perhaps even before his or her first premium payment is due. Likewise, for the business, if the retiree does not wish to take over the policy, it can request a quote for the policy's value and sell the policy for more than it would have received for the policy's cash surrender value. Because the policy has generally been held for more than a year, the excess cash received may be entitled to the favorable capital gains treatment as well. Stephen M. Watson, President of Viatical Settlement Professionals, Inc., is an attorney and licensed Viatical Settlement Broker. He is a graduate of The University of Virginia, and Washington & Lee University School of Law. |
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