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. However, the selle