Bonded life insurance settlements are settlement for insurance policies that are provided by bonding companies. For a premium, these companies promise to buy out the purchaser's interest in the policy at face value, in case the policy does not mature by a particular date.
Bonded policies typically have a low return on investment, as a part of the purchase funds is owed towards, paying a lump sum performance bond premium. Bonded viatical life settlements, also known as bonded viaticals, are termed as secondary market life insurance policy contracts. Viatical investment contracts have the option of, emergency or stop loss insurance on the life expectancy, which is called a wrapper.
The insurance company that issues the wrapper offers, an insurance policy or financial guarantee, according to the performance of the underlining life expectancy. This kind of financial guarantee guarantees more security and safety to policy owners, who may be interested in purchasing viatical investment contracts. This transfer of the life extension risk from the purchasers to an insurance company increases, the chances of a return on the funds that are invested.
However, there is one major risk associated with viatical purchase contracts or viatical investment. The risk is that the insured, which is also known as the viator, will live beyond their originally anticipated life expectancy. To combat the life extension risk, some vatical companies escrow additional funds to cover for it. In case these funds are exhausted prior to the maturity of the policy, its liability lies with the purchaser. It means that the purchaser of the vatical investment contract may have to maintain the account by paying the premiums, until the maturity of the contract. The maturity of the contract in this case is the death of insured.
There is also a possibility that, an escrow agent or trust department, is concerned with making payments for premiums on the life insurance policy. The status of this escrow agent or trust company status must also be looked up during the determination of the value of the investment.