Utah · Life Insurance · Long-Term Care · 2026

Selling a Life Insurance Policy in Utah (2026): How a Life Settlement Works and the Rules That Protect You

An old policy you no longer want is not automatically worth nothing - and Utah law is unusually specific about what has to happen before you sign it away.

Utah Retirement Income Data Desk

Reviewed by Brian Penner, Retirement income & long-term care planner · Published September 18, 2026

An older Utah couple reviewing a life insurance policy and premium notice at their kitchen table.

The bottom line

A life settlement is the sale of an existing life insurance policy to a licensed buyer. Utah Code 31A-36-102(8) says the agreement counts as a life settlement even if it is called a "viatical settlement" or a "senior settlement."
You get an unconditional right to rescind for 15 calendar days after the proceeds arrive - and if the insured dies during that window, the sale is treated as rescinded when the money is repaid within 60 days.
A policy generally cannot be sold within 2 years of issue, unless you certify one of 10 circumstances listed in the statute.
Before you sign the application, Utah requires 12 specific written disclosures - starting with the alternatives you have inside the policy you already own.
The tax math changed. IRS Rev. Rul. 2020-05 confirms your basis is no longer reduced by the cost of insurance, which cut the taxable income in the IRS's own example from $26,000 to $16,000.
Selling ends the death benefit for your family. That is the trade, and it is permanent.

The call usually sounds the same. A couple in Sandy is looking at a premium notice on a universal life policy bought in 1998, a policy the kids no longer need, at a moment when assisted living for one of them is suddenly on the table. The choice looks binary: keep paying for something nobody wants, or stop paying and walk away with nothing. There is a third door - selling the policy - and Utah regulates it closely enough that most of the consumer protections are written directly into the statute. Here is what the law actually says, what the IRS does with the money, and the questions worth asking before anyone signs.

What is a life settlement, in Utah's own words?

Utah Code 31A-36-102(8)(a) defines a life settlement as a written agreement between a policy owner and a life settlement provider that "establishes the terms for the payment of anything of value in exchange for the owner assigning, selling, transferring, devising, releasing, or bequeathing" the death benefit or ownership of a policy or a beneficial interest in it. Subsection (8)(c) closes the naming loophole: the agreement is a life settlement even if it is marketed as a viatical settlement or a senior settlement.

Just as important is what a life settlement is not. Under 31A-36-102(8)(d)(i), the definition excludes "a loan or accelerated death benefit by an insurer pursuant to the terms of a policy." If your own insurance company advances part of the death benefit under a rider you already paid for, that is not a sale and this chapter does not govern it - a distinction that matters, because that rider is often the simpler answer.

Utah also requires a license. Under 31A-36-104(1)(a), no person may operate in or from Utah as a life settlement provider or a life settlement producer without first obtaining a license from the insurance commissioner, and subsection (1)(b) folds life settlements into the life insurance producer line of authority. You can check any Utah license through the Utah Insurance Department before a first meeting, not after.

15 days

Unconditional right to rescind after the proceeds arrive

2 years

Minimum policy age, with 10 certified exceptions

Written disclosures required before you sign the application

$16,000

Taxable income in the IRS's example, down from $26,000

Sources: Utah Code 31A-36-109(7), 31A-36-111(2) - le.utah.gov (PDF); Utah Admin. Code R590-222-8(1) - law.cornell.edu; IRS Rev. Rul. 2020-05 - irs.gov (PDF).

What are your five options with a policy you no longer want?

A settlement is one exit, not the only one. Utah's disclosure rule actually forces the buyer to put the others in front of you first: R590-222-8(1)(a) requires written disclosure of "the alternatives to a life settlement, including any accelerated death benefit, loan, or other benefit offered under the owner's life insurance policy." Here is the field.

Option	What you get	General tax treatment	The catch
Keep the policy	The full death benefit is paid to your beneficiaries	Death benefit generally income-tax-free to the beneficiary	Premiums keep coming due; a lapse forfeits everything
Surrender for cash value	The insurer pays the policy's cash surrender value, if any	Gain above your basis is generally taxable as ordinary income	Term policies usually have no cash surrender value
Accelerated death benefit rider	The insurer advances part of the death benefit early	May be excludable under IRC section 101(g); reported on Form 1099-LTC	Not a life settlement under Utah Code 31A-36-102(8)(d)(i)
Life settlement (sale)	A licensed buyer pays a lump sum and takes over the policy and premiums	Three tiers; basis is premiums paid (Rev. Rul. 2020-05)	Your beneficiaries receive nothing from the policy afterward
Let it lapse	Coverage ends and you receive nothing	No proceeds, so generally nothing to report	The outcome the other four exist to avoid

General descriptions only; tax outcomes depend on your own policy, basis and circumstances. Accelerated death benefit and Form 1099-LTC references: IRS, Instructions for Form 1099-LTC. Life settlement definition and exclusions: Utah Code 31A-36-102(8).

Start inside the policy. An accelerated death benefit rider you already own, a policy loan, or a reduced paid-up option costs nothing to ask about and does not end the coverage. Utah requires the buyer to tell you those exist. Ask your insurer first, then compare.

Who is eligible, and what do "terminally ill" and "chronically ill" mean?

Utah's statute is explicit that an "owner" is not limited to someone who is terminally or chronically ill (31A-36-102(12)(b)) - those limits apply only where the chapter says so. But the definitions matter for the two-year rule and for federal tax treatment, and the state and federal versions line up closely.

Terminally ill - Utah Code 31A-36-102(19): "having a condition that reasonably may be expected to result in death within 24 months." The IRS uses the same window, adding that a physician must certify it (Instructions for Form 1099-LTC).
Chronically ill - Utah Code 31A-36-102(3): being unable to perform at least two activities of daily living - the statute lists eating, toileting, moving from one place to another, bathing, dressing and continence - or requiring substantial supervision for protection from threats to health and safety because of severe cognitive impairment. The IRS version requires certification at least annually by a licensed health care practitioner, and that the inability to perform at least 2 of the 6 activities be expected to last at least 90 days.

If either applies, federal law may treat money paid by a licensed viatical settlement provider as an accelerated death benefit rather than an ordinary sale. The IRS instructions define an accelerated death benefit to include "any amount paid by a viatical settlement provider for the sale or assignment of a death benefit under a life insurance contract for a chronically or terminally ill individual," and require the payer to report it in Box 2 of Form 1099-LTC. Whether any of it is excludable under IRC section 101(g), and how much, depends on the certification, the type of payment and the federal limits that apply in the year received - a question for a tax professional, not a brochure.

Why can't I sell a policy I just bought?

Utah Code 31A-36-111(1) bars a life settlement entered into before the application or issuance of a policy outright, and 31A-36-111(2) bars one within two years of issuance unless the owner certifies one of the following to the buyer:

The policy was issued on the exercise of conversion rights from a group or individual policy, and the conversion policy plus the prior policy together cover at least 24 months (31A-36-111(2)(a)).
The owner or insured is terminally ill.
The owner or insured is chronically ill.
The owner's spouse dies.
The owner divorces.
The owner retires from full-time employment.
The owner acquires a physical or mental disability and a physician determines it precludes full-time employment.
A court enters a judgment adjudging the owner bankrupt or insolvent, approving a reorganization petition, or appointing a receiver, trustee or liquidator for a substantial part of the owner's assets.
The owner experiences a significant, unexpected decrease in income that impairs the reasonable ability to pay the premium.
The owner or insured disposes of ownership interests in a closely held corporation under a buyout agreement already in effect when the policy was issued.

The rule exists to stop stranger-originated life insurance - policies taken out at an investor's urging on a life the investor has no insurable interest in. Utah defines the practice at 31A-36-102(18) and separately prohibits, at 31A-36-111(5), issuing, soliciting or marketing the purchase of a policy "for the primary purpose of or with a primary emphasis on settling the policy." If anyone proposes buying a new policy in order to sell it, that is the conversation to end.

What has to be disclosed to you in writing?

This is where Utah's rule earns its keep. R590-222-8(1) - amended by Utah State Bulletin 2023-15, effective July 25, 2023 - requires a separate document, signed by you and by the provider or producer, delivered no later than the time you sign the application. It must contain all 12 of the following:

The alternatives to a life settlement, including any accelerated death benefit, loan or other benefit offered under your own policy.
That the proceeds may be taxable under federal and state income tax law, and that you should seek help from a professional tax advisor.
That the proceeds may be subject to the claims of creditors.
That receiving the proceeds may adversely affect your eligibility for Medicaid or other government benefits or entitlements, and that you should get advice from the appropriate government agencies.
That you may rescind within 15 calendar days after receiving the proceeds.
That if the insured dies during the rescission period, the settlement is rescinded.
That rescission requires repaying all proceeds, premiums, loans and loan interest to the provider.
That funds are sent within 3 business days after the provider receives the insurer's written acknowledgment of the ownership and beneficiary change.
That entering a life settlement may cause other rights or benefits - including conversion rights and waiver of premium benefits - to be forfeited, and that you should seek help from a financial adviser.
Appendix C to the rule.
Specified language explaining that your medical, financial and personal information - including your identity and that of family members - may be disclosed as necessary to effect the settlement, that you will be asked to consent, and that you may be asked to renew that permission every two years.
That after the settlement you may be contacted to confirm your health status, street address and telephone number.

A second disclosure is due no later than the day the settlement itself is signed. Under R590-222-8(2)(b) it must state any affiliation between the buyer and the insurer that issued your policy; the buyer's name, business address and telephone number; the amount and the method used to calculate the compensation paid to the producer or anyone else acting for you (and "compensation" expressly includes anything of value paid for placing the policy); a warning about possible loss of coverage on other lives if your policy is a joint policy or carries family riders; the dollar amount of the current death benefit and of any accidental death and dismemberment benefits; the independent escrow agent's name, business address and telephone number; and that you may inspect or receive copies of the escrow or trust documents.

The compensation line is the one to read twice. Utah requires the amount and the method used to calculate it in writing. If a number is missing or a page is blank, the disclosure is not complete.

How the money and the paperwork actually move

Utah sets a specific sequence at 31A-36-109 and 31A-36-110, and each step has a deadline:

Before the purchase. If you are both the owner and the insured, the provider must first obtain a written statement from a licensed attending physician that you are of sound mind and under no constraint or undue influence, plus a witnessed document in which you represent that you understand the settlement and entered it freely and voluntarily (31A-36-109(2)).
Notice to your insurer. Within 20 calendar days after you execute the transfer documents, the provider must give written notice to the company that issued your policy, with copies of your medical release and your application (31A-36-109(3)-(4)).
Verification of coverage. Your insurer must complete and return a verification-of-coverage request within 30 calendar days and indicate whether it intends to investigate the contract's validity (31A-36-109(5)(a)).
Escrow. You send the executed documents to an independent escrow agent, and within 3 business days the provider must deposit the proceeds into an escrow or trust account at a federally insured depository institution (31A-36-110(1)).
The change of ownership. On a properly completed request, the insurer must respond in writing within 30 calendar days confirming the change or explaining why it cannot be processed, and may not unreasonably delay it or otherwise interfere (31A-36-111(4)).
Payment. Within 3 business days after the provider receives that acknowledgment, the escrow agent pays you. Missing the deadline makes the settlement voidable by you for lack of consideration until payment is tendered to and accepted by you (31A-36-110(3)).
Your 15 days. The clock starts the day you receive the proceeds (31A-36-109(7)(a)(ii)).
Afterward. Only a licensed provider or producer, or its authorized representative, may contact the insured about health status - no more than once every 3 months if life expectancy is a year or more, and no more than once a month if it is less (31A-36-109(8)).

Two more protections are worth knowing. Under 31A-36-109(10), the life settlement producer represents only you and owes you a fiduciary duty - regardless of the method of compensation. And under 31A-36-106(2), a provider, producer, insurance producer, information bureau or rating company may not disclose the insured's identity, financial information or medical information except in the narrow circumstances the statute lists.

How is a life settlement taxed?

The federal rule changed in a way that helps sellers, and a surprising number of older articles still describe the old one.

Before 2017, Rev. Rul. 2009-13 required a seller to reduce basis in the policy by the cost of insurance already absorbed. Section 13521 of the Tax Cuts and Jobs Act amended IRC section 1016(a) so that, in determining the basis of a life insurance or annuity contract, no adjustment is made for mortality, expense, or other reasonable charges. In Rev. Rul. 2020-05, the IRS applied that change and modified its earlier rulings, effective for transactions entered into on or after August 26, 2009. Here is the agency's own worked example - its facts, its arithmetic:

Situation 2, Rev. Rul. 2009-13 (cash-value policy sold)	Old rule	Rev. Rul. 2020-05
Sale price	$80,000	$80,000
Premiums paid	$64,000	$64,000
Cost of insurance subtracted from basis	$10,000	$0
Adjusted basis	$54,000	$64,000
Income recognized	$26,000	$16,000
Character of that income	-	$14,000 ordinary, $2,000 long-term capital gain

Source: IRS Rev. Rul. 2020-05, restating Situation 2 of Rev. Rul. 2009-13 - irs.gov/pub/irs-drop/rr-20-05.pdf. These are the IRS's illustrative facts, not a projection of any real policy or offer.

The reversal is even sharper on term insurance. In Situation 3 of the same ruling - a fifteen-year level premium term policy with no cash surrender value, $45,000 of premiums paid, sold for $20,000 - the old rule produced $19,750 of taxable income. Under the amended section 1016, basis equals premiums paid, so the IRS now holds that the seller recognizes a long-term capital loss of $25,000, adding that the loss is not deductible unless it is incurred under section 165(c)(1) or (2). The practical point for a Utah household: the tax answer on a term policy is not the one your neighbor got in 2012.

Rev. Rul. 2020-05 also notes that the retroactive change does not by itself permit a refund claim already barred by the section 6511 limitations period. This is general information, not tax advice - bring the ruling and your policy to a CPA or tax attorney.

What is the money actually for?

Most Utah sellers are not looking for a windfall; they are looking at a care bill. The U.S. Administration for Community Living estimates that about 70% of people turning 65 today will need some type of long-term care, that roughly 20% will need it longer than five years, and that women need care about 3.7 years on average against 2.2 years for men. Medicare does not pay for that ongoing custodial care. Here is what a year of it costs in Utah.

Assisted living $56,220

Homemaker / companion $82,368

Home health aide $86,944

Nursing home (semi-private) $100,375

Nursing home (private) $127,750

Annual cost of long-term care in Utah by setting, 2024. Source: CareScout (Genworth) Cost of Care Survey 2024 - Utah - carescout.com/cost-of-care. Home care figures reflect roughly 44 hours of help per week.

Set the two facts side by side and the decision gets clearer. A lump sum that covers eleven months of assisted living in Salt Lake County is meaningful - and it is also finite, while the death benefit it replaced was not. That is the trade to weigh out loud with the people who would have received the policy.

Eight questions to bring to the appointment

What does my own insurer offer - an accelerated death benefit rider, a policy loan, a reduced paid-up option - and what would each pay? (R590-222-8(1)(a) requires this to be disclosed anyway.)
Are the provider and the producer licensed in Utah, and what does the Insurance Department's licensee search show?
What is the producer's compensation, in dollars, and how was it calculated? (R590-222-8(2)(b)(iii).)
Does this policy carry conversion rights or a waiver of premium benefit I would forfeit? (R590-222-8(1)(i).)
Is this a joint policy, or does it carry family riders covering anyone else? (R590-222-8(2)(b)(iv).)
What is my basis - total premiums paid - and what has my CPA said about the tiers in Rev. Rul. 2020-05?
Have I asked Utah Medicaid and an elder-law attorney what a lump sum does to eligibility? (R590-222-8(1)(d).)
Who is the independent escrow agent, and may I see the escrow agreement? (R590-222-8(2)(b)(vi)-(vii).)

If something in the process looks wrong, the Utah Insurance Department takes consumer complaints at insurance.utah.gov/complaints. Utah Code 31A-36-113 makes knowingly presenting false information in connection with a life settlement a prosecutable act, and 31A-36-118 allows restitution to people aggrieved by a violation.

Not sure whether that old policy is worth keeping?

We help Utah families put the policy, the care costs, and the income plan on one page - in plain English, with no pressure, and with your CPA and attorney in the loop where the answer is theirs to give.

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Frequently asked questions

What is a life settlement in Utah?

Utah Code 31A-36-102(8) defines a life settlement as a written agreement between a policy owner and a licensed life settlement provider setting the terms for paying something of value in exchange for the owner transferring the death benefit or ownership of a life insurance policy. The statute says the agreement is a life settlement even if it is called a viatical settlement or a senior settlement.

Can I change my mind after selling my life insurance policy?

Yes. Utah Code 31A-36-109(7) requires every life settlement entered into in Utah to reserve to the owner an unconditional right to rescind, and the rescission period ends 15 calendar days after the day you receive the proceeds. Rescission can be conditioned on your repaying the proceeds plus any premiums, loans and loan interest the buyer paid. If the insured dies during the rescission period, the settlement is considered rescinded when those amounts are repaid within 60 calendar days of the death.

How old does a policy have to be before it can be sold in Utah?

Generally two years. Utah Code 31A-36-111(2) bars a life settlement within two years of the policy's issuance unless the owner certifies one of ten listed circumstances - including a qualifying conversion from a group or individual policy, a terminal or chronic illness, the death of a spouse, a divorce, retirement from full-time employment, a disabling condition, a bankruptcy or insolvency judgment, an unexpected significant decrease in income that impairs the ability to pay the premium, or the disposal of an interest in a closely held corporation under a pre-existing buyout agreement.

Is the money from a life settlement taxable?

It can be. Utah Admin. Code R590-222-8(1)(b) requires the buyer to disclose in writing that the proceeds may be taxable under federal and state income tax law and that you should seek help from a professional tax advisor. IRS Rev. Rul. 2020-05 confirms that, after section 13521 of the Tax Cuts and Jobs Act, your basis in the contract is not reduced by the cost of insurance - which lowered the taxable amount in the IRS's own example from $26,000 to $16,000. This is general information, not tax advice; talk with a tax professional about your policy.

Will selling my policy affect Medicaid?

It may. Utah Admin. Code R590-222-8(1)(d) requires the buyer to disclose that receiving life settlement proceeds may adversely affect the owner's eligibility for Medicaid or other government benefits or entitlements, and that advice should be obtained from the appropriate government agencies. Because Utah Medicaid counts available resources when deciding long-term care eligibility, a lump sum is worth discussing with the agency and an elder-law attorney before you sign anything.

Who does the person arranging the settlement work for?

You. Utah Code 31A-36-109(10) says that regardless of how the person is compensated, a life settlement producer represents only the owner and owes a fiduciary duty to the owner to act according to the owner's instructions and in the owner's best interest. Utah Admin. Code R590-222-8(2)(b)(iii) separately requires written disclosure of the amount and the method used to calculate that person's compensation.

Does Medicare pay for long-term care instead?

Generally no. Medicare covers short, skilled care after a qualifying hospital stay and some home health, but not the ongoing custodial help with daily activities that most families end up paying for. That gap is the reason many Utah households look at an unwanted policy in the first place.

Sources

Utah Code Title 31A, Chapter 36, "Life Settlements Act" (definitions, licensing, required disclosures, general requirements, rescission, payment, prohibited acts, fraud, penalties) - le.utah.gov (PDF); title index at le.utah.gov/xcode/Title31a
Utah Admin. Code R590-222-8, "Disclosures," amended by Utah State Bulletin 2023-15, effective July 25, 2023 - law.cornell.edu; rule index at insurance.utah.gov/consumers/legal-resources/rules
IRS Rev. Rul. 2020-05, "Section 1016 - Adjustments to basis," modifying Rev. Rul. 2009-13 and Rev. Rul. 2009-14 after section 13521 of the Tax Cuts and Jobs Act - irs.gov/pub/irs-drop/rr-20-05.pdf
IRS, Instructions for Form 1099-LTC (rev. 04/2025) - accelerated death benefits, viatical settlement providers, and the terminally ill and chronically ill definitions - irs.gov/instructions/i1099ltc
Utah Insurance Department - licensee search, consumer resources and complaints - insurance.utah.gov · insurance.utah.gov/complaints
CareScout (Genworth) Cost of Care Survey 2024 - Utah - carescout.com/cost-of-care
U.S. Administration for Community Living - how much care you will need - acl.gov/ltc/basic-needs/how-much-care-will-you-need
What Medicare covers - Medicare.gov; Medicaid program details - Medicaid.gov

About this article. Written by the Utah Retirement Income Data Desk and reviewed by Brian Penner, Retirement income & long-term care planner. Educational only - not financial, tax, or legal advice, and not a recommendation of any product or transaction. Utah Retirement Income is a licensed independent insurance agency (NPN 16493717) and is not connected with or endorsed by any government agency, the federal Medicare program, or Utah Medicaid. Insurance and annuity guarantees are subject to the claims-paying ability of the issuing company; product availability, rider terms and offers vary by company and may change. There are no guaranteed investment returns, and no savings or settlement amount is promised. A life settlement ends the death benefit your beneficiaries would otherwise receive and can affect taxes, creditor exposure and government benefit eligibility - confirm your own situation with a tax professional, an elder-law attorney, and the appropriate government agencies. Statutory and regulatory citations are to the versions published at the links above as of the date shown and may be amended.