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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.

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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)

ComponentTax Treatment
Up to BasisTax-free
Basis to CSVOrdinary income
Above CSVCapital gains

vs. Viatical

FeatureLife SettlementViatical
SellerSenior 65+Terminally ill
Payout10-25%50-70%
TaxTAXABLETax-free

Study This Term In

Life & Health Insurance

Related Terms

Viatical Settlement

Sale of life insurance by a terminally ill person (24 months or less) to a third party for 50-70% of death benefit, with proceeds TAX-FREE.

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