Grigsby v. Russell (1911) The
U.S. Supreme Court case of
Grigsby v. Russell, 222 U.S. 149 (1911) established and legitimized the sale of the right to receive life insurance benefits, ruling that a policy was private property which may be assigned at the will of the owner. The case was argued in November 1911 and decided on December 4, 1911. Justice
Oliver Wendell Holmes noted in his opinion that life insurance possessed all the ordinary characteristics of property, and therefore represented an asset that a policy owner may transfer without limitation. Dr. A. H. Grigsby treated a patient named John C. Burchard. The early victims of
AIDS in the U.S. were largely gay men, typically relatively young and without wives or children (the traditional
beneficiaries under a life insurance policy), but often covered by life insurance through employment or as a result of investments. The beneficiaries under the policies were often their parents who did not need the money. Viatical settlements offered a way to extract value from the policy while the policy owner was still alive. At the time, the AIDS mortality rate was very high, and life expectancy after diagnosis was typically short. although a niche business persists to this day acquiring policies on terminally ill of all ages. Policies of terminally ill patients are rare for two key reasons. First, the market size of terminally ill insured interested in selling their policies is small. Second, carriers now offer accelerated death benefit riders, which pay out if the insured is terminally ill, so there is no need for a settlement. In 1993, the
National Association of Insurance Commissioners (NAIC) adopted the first Viatical Settlement Model Act. The term "viatical settlement" refers to a life settlement where the life expectancy is under two years because the person is terminally ill. In 2001, "life settlements" became a common term to describe the purchase of life insurance policies from senior citizens. Early improper activities among a few bad actors produced a fear among consumers regarding viatical settlements. Following the
Tax Cuts and Jobs Act of 2017, proceeds up to the total amount of premiums paid over time are tax free, and proceeds more than the
tax basis up to the amount of the policy's surrender value are taxed as
ordinary income. It was reintroduced in 2021. According to a 2023 study by a life settlement industry group, policyholders received approximately $842 million through life settlement transactions, representing $707 million in additional value compared to policy lapses or insurer surrenders. == Market size ==