The Georgia Supreme Court rules it’s okay to buy a life insurance policy on yourself with the intent to sell it to someone else.
Viatical settlements, or life settlements, are often used by people who need money for medical bills. The case justices ruled on in October centered on a man with HIV who took out a life insurance policy on himself in 1999 but did not disclose his HIV-positive status. He bought it with the intent of selling it to a third party. Kelly Couch sold it and had the $500,000 policy transferred to a “friend” whom in fact he’d never met. That man, who did know Couch’s HIV status, paid the premiums and made the claim for the death benefit in 2005.
Jackson National Life Insurance Company denied the claim and went to federal court to void the contract by calling it illegal human-life wagering.
“In the eighteenth century, it became popular in England to buy insurance on the lives of strangers — for example, elderly celebrities, or defendants being tried for capital crimes — as a form of gambling,” said the ruling. “These policies were considered gambling bets, not insurance against any risk of loss, because those who bought this ‘insurance’ had no interest in the underlying ‘asset,’ i.e., the life at stake.”
Justices reversed a lower court’s ruling and okayed the practice, which is regulated. The opinion also noted that the “illegal wagering” claim was based on outdated law.
President Bryan Freeman of Habersham Funding in Atlanta says a life settlement pays cash for a life insurance policy someone may not need--or can no longer afford.
“In many cases this is the best financial option for someone, but many people don’t know that,” says Freeman. “Over 90% of all life insurance policies lapse before someone dies. So they don’t pay a death claim.”
A life settlement then is an option for people to get some money out of their life insurance policy before dying or letting the policy lapse if they can’t keep making the payments.
Freeman says only people who are older or very sick qualify to sell their policies. Life expectancy is a major factor, so typically, someone younger than 70 years old would need to have serious health issues. The seller gets a lower amount of money than the full value of the policy’s death claim.
“People are using it to pay their mortgage, their car note, their medical bills,” says Freeman. “I’m doing a transaction right now with a senior who says instead of waiting to die to give the death benefit to his grandchildren after he’s gone, he wants to be able to give them money while he’s alive and enjoy doing that.”
Freeman, who has handled these types of settlements for decades from his office in Buckhead, calls it “a real shame” that more people don’t know about them. He did one of the very first settlements of its type in 1989.
“It’s helped a lot of people over these decades that I’ve been doing it, and I’ve been proud to be able to help people,” he says. “It’s been a fun business to be in.”