What are viatical and life settlements in Nevada?

A life settlement allows a life insurance policyholder to sell their policy to a third-party investor for more than the cash surrender value but less than the face value. The investor assumes future premium payments and receives the death benefit when the insured passes. A viatical settlement is similar but specifically applies to terminally or chronically ill policyholders.

Nevada regulates both life settlements and viatical settlements through the Nevada Division of Insurance. Life settlement providers and brokers must be licensed in Nevada. Transactions must include specific disclosures, a 15-day rescission period, and comply with privacy protections for the insured's medical information.

Life settlements can make sense for policyholders who no longer need their coverage, can no longer afford premiums, or have a changed financial situation. Proceeds above the policy's cost basis are taxable—as ordinary income up to the cash value amount, and as capital gain above that. Consult a tax professional before completing a life settlement.

Viatical settlements for terminally ill policyholders (life expectancy of 24 months or less) may receive more favorable proceeds and potentially more favorable tax treatment. The accelerated death benefit rider (if present) is an alternative that avoids the tax complications of a viatical settlement by accessing the death benefit directly from the carrier.