Life Settlement
Sale of life insurance by a senior (65+) to a third party for 10-25% of death benefit, with proceeds TAXABLE in three tiers.
Exam Tip
Life settlement = senior (65+) sells. TAXABLE in 3 tiers: basis (free), CSV-basis (ordinary), above CSV (capital gains). Lower payout than viatical.
What is a Life Settlement?
Senior (not terminal) sells policy to investor.
Tax Treatment (Three Tiers)
| Component | Tax Treatment |
|---|---|
| Up to Basis | Tax-free |
| Basis to CSV | Ordinary income |
| Above CSV | Capital gains |
vs. Viatical
| Feature | Life Settlement | Viatical |
|---|---|---|
| Seller | Senior 65+ | Terminally ill |
| Payout | 10-25% | 50-70% |
| Tax | TAXABLE | Tax-free |
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