Insurance Buyout: Policy Buyouts & Lump Sum Buyouts

A primer on Policy Buyouts; Insurance Buyouts are complex instruments and we can show you how to take advantage of them.

In this article we will discuss a Policy Buyout, Lump Sum Buyout (LSBU) or Deferred Purchase Benefit (DPB).


An insurance buyout guarantees that an insured will assuredly receive the full sum diagnosed with any of the critical illnesses specified in the policy. If not diagnosed with any of the critical illnesses during the entire tenure of the policy, the insured will receive the maturity sum assured at the end of the policy term.

Critical illness insurance can have a variety of policies or terms:

Lump sum payout: This is paid in one lump sum if the policyholder is diagnosed with one of the critical illnesses covered by the policy.

Deferred payout benefit: If you do not experience any of the critical illnesses included in the policy during the entire tenure of the policy, you will receive the maturity sum assured at the end of the policy term.

Value covered: The maximum amount payable under a policy is known as the value of coverage. The premium charged by the insurer is also dependent on this. These policies usually cover a maximum amount. The value of the policy can also be altered when necessary.

With these terms in mind, we can now discuss the negotiation of a full insurance buyout.

A Viatical Settlement is a unique and creative way to plan for your future while retaining the asset that you have worked hard for. A Viatical Settlement allows you to sell an owned asset, called an equity release (IRA, 401K, etc.), to a Viatical Settlement Broker in exchange for a lump sum cash payment. This settlement may be an insurance policy. This is typically an agreement between a health insurance company and a seller, whereby the seller agrees to sell his policy to the insurer in return for a lump sum payment. A viatical settlement provides additional money to fund the remaining portion of the patient’s care, while still allowing the patient the benefits of a life insurance policy to pay for medical care at the end of life.

The original buyer has only temporary ownership, in exchange for the agreed upon purchase price. In the future, should the original owner become terminally ill or unable to perform any type of employment for any amount of time, the current owner would then return the asset back to the original owner. This process allows the original owner to receive a large sum of money immediately, for the purposes of planning for the future.

Viatical settlements are usually meant for patients with a terminal illness with a life expectancy of one year or less. A life expectancy of one year or less is indicated by an active treatment plan or other reasonable and scientific clinical indicators of a patient’s condition, and involves a number of clinical judgment factors, and is not determined in any other way.

Typically, the insurer would send a professional evaluator to determine the validity of the patient’s condition, and thereafter issue a purchase offer for the policy. A viatical settlement is binding upon the policyholder and the insurer.

An Insurance Buyout in the context of Long Term Disability, thus, is usually made between a medical insurance company and a seller, whereby the seller agrees to sell his policy to the insurer in return for a lump sum payment.