Exercise
Answer the Following Questions
- 1. Which of the following represents a risk that should be considered by an insured individual who plans to sell his life insurance policy in a viatical settlement?
- I. He may have to pay taxes for money received in the settlement.
- II. It is impossible to predict what his ultimate compensation will be at the time of sale.
- III. It may be harder and more expensive for him to get a new policy.
- IV. He is unlikely to receive more than the surrender value of his policy.
- A. I and II
- B. II and III
- C. I and III
- D. III and IV
- 2. True or false. The investor in a viatical settlement usually purchases the policy directly from the policyholder.
- 3. True or false. If the insured member of a viatical settlement lives longer than her life expectancy, the investor will most likely receive a lower rate of return than expected.
- 4. Which of the following does not represent a potential problem related to investing in life settlements?
- A. The actual life expectancy of the insured cannot be predicted.
- B. They are highly illiquid.
- C. Some policies may be contested, causing a loss of investment.
- D. The medical condition of the insured is never disclosed.
Answers
- 1. C. An insured individual who sells his policy may be required to pay taxes on the lump sum received in the settlement. Additionally, he may have trouble finding a new and comparably priced policy. Howe