Viatical Settlement: Everything You Need to Know
Viatical settlement provides a financial lifeline for individuals with terminal illnesses, offering a way to turn your life insurance policy into immediate cash. Whether you need funds for medical expenses, living costs, or personal goals, this guide will walk you through everything you need to know about viatical settlements.
What Is a Viatical Settlement?
Viatical settlements allow a life insurance policyholder with a terminal illness to sell their policy to a third party for a lump sum payment. The buyer assumes responsibility for paying future premiums and becomes the beneficiary of the policy.
Quick Facts:
- Purpose: Offers financial support for individuals with a life expectancy of 24 months or less.
- Policies Eligible: Whole life, universal life, and convertible term policies.
- Benefits: Immediate cash, often tax-free, with no restrictions on how the funds are used.
Expected Viatical Settlement Payout
- Life expectancy less than 6 months: 80% of the value.
- Life expectancy 6–12 months: 70% of the value.
- Life expectancy 12–24 months: 60% of the value.
How Does a Viatical Settlement Work?
The process is straightforward and designed to provide quick access to funds:
Consultation
- Discuss your needs and eligibility with a viatical settlement expert.
Evaluation
- Medical records and policy details are reviewed by a competitive network of funds.
Offer
- Receive an offer based on your life expectancy, policy type, and premium costs.
Closing
- Accept the offer, sign the necessary paperwork, and receive your funds.
Key Transaction Parties:
Benefits of a Viatical Settlement
Immediate Financial Relief
Receive a lump sum payment quickly to cover urgent expenses.
No Premium Costs
The buyer takes over premium payments.
Tax-Free Proceeds
Proceeds are generally tax-free for terminally ill individuals under IRS guidelines.
Flexible Use of Funds
Pay for medical care, reduce debt, or enjoy quality time with loved ones.
Who Qualifies for a Viatical Settlement?
Eligibility Requirements:
- A terminal illness with a certified life expectancy of 24 months or less.
- Ownership of a whole, universal, or convertible term life insurance policy.
Viatical Settlement vs. Life Settlement
This comparison table helps to understand the differences between viatical settlement and life settlement:
| Feature | Viatical Settlement | Life Settlement |
|---|---|---|
Eligibility |
Terminal illness |
Seniors with longer life expectancy |
Proceeds |
Often tax-free |
May be taxable |
Purpose |
Financial relief for medical and living expenses |
Cash for unwanted policies |
Risks and Considerations
- Privacy: Sharing medical information is required but should remain confidential with a licensed broker.
- Impact on Benefits: Proceeds may affect eligibility for Medicaid or other government programs.
- Loss of Death Benefit: Beneficiaries will no longer receive the policy’s payout.
How to Choose the Best Viatical Settlement Company
- Licensing: Verify that the company is licensed in your state to transact viaticals.
- Transparency: Work with companies who disclose all fees upfront and offer real time offer updates.
- Competition: Look for a company that can effectively market your policy to a competitive range of buyers.
Frequently Asked Questions
Typically 2–6 weeks, depending on documentation and underwriting.
Yes, partial settlements are possible, allowing you to retain some coverage.
Most states offer a 15–30 day rescission period during which you can cancel the settlement.