Viatical Settlements
Follow along as we break down the basics of viatical settlements. This transparent, easy-to-follow guide gives potential sellers a strategic advantage for top-dollar results.
Let’s dive in!
What’s a Viatical Settlement?
A viatical settlement is a safe and legal financial transaction for a terminally ill person who sells their life insurance policy to another life insurance company. The buyer of the policy (called a provider) becomes the new beneficiary and receives the death benefit upon the insured death.
- Who qualifies Anyone who is terminally or chronically ill with a policy over $50,000
- Minimum age Unlike a life settlement, there are no age restrictions.
- Benefits: Proceeds are often tax-favored.
Brief history
Viatical vs life settlement
Payouts
How to Sell Your Policy for Top Dollar
Everyone’s situation is a bit different and there is no guarantee you can sell your policy. Here’s a roadmap to help you navigate different sections of this page;
Eligibility
How do you qualify for a viatical settlement? The criteria is pretty basic but you would need to speak with a viatical broker just like any other health and life insurance product to get a free appraisal for your situation. Here’s a general guideline;
- Must have proven terminal or chronic illness
- Policies must be at least 2 years old
- The face value or death benefit is generally above $100,000
- HIPPA: Allow access to 3 years of medical history.
- Life Release: Allow carriers to provide policy copy and illustrations.
- Disclosure: Agreement to terms of service.
- Closing Documents: If an offer is accepted.
Viatical Pros & Cons
PROS
- Help cover medical or end-of-life expenses.
- Improve the quality of life for yourself and others.
- Average 5x cash payouts above surrender value (LISA 2022). Term policies may apply.
- Keep the original intent of the policy.
- Pocket future premiums.
- Possible tax-favored benefits for end-of-life and long-term care rollover.
- Proceeds can typically be spent without restriction.
CONS
- Beneficiaries will not receive the full death benefit.
- Possible Medicaid ineligibility.
- Loss aversion: A misconception of life insurance as property that can be sold like a home.
- Viaticals can take time to settle which can be an inconvenience and at times stressful during an already difficult situation.
- Your creditors can claim proceeds.
- The process takes time & paperwork.
Weigh Your Options
- Keep the policy.
- Check if your policy has Accelerated Death Benefits (ADB).
- Consider a policy loan if possible.
Choosing the Best Viatical Settlement Company for You
VIATICAL PROVIDERS
Providers are specialty licensed viatical companies who ultimately purchase your life insurance policy. They are the ones making the offers. They represent multiple funds owned by institutional investors. They buy large portfolios and are not considered with any one policy. Providers are NOT fiduciaries and their goal is profitability. It is not in the consumer’s best interest to work directly with a viatical settlement provider! However, providers are the trusted source of liquidity and are held to a high ethical standard.
Top Viatical Providers
- Coventry & Coventry Direct
- Abacus Life
VIATICAL SETTLEMENT BROKERS
Unlike providers, viatical brokers are licensed agents who have a legally bound fiduciary duty to their client’s best interest. Think of a viatical broker like a real estate agent. Brokers are paid a fee to represent the seller and list the policy at auction among the top providers competing to buy a policy thus creating fair market value. The goal is to negotiate multiple offers increasing the payout amount and exceeding their commission. Viatical brokers have been known to charge excess fees so make sure they can justify the cost accordingly.
Top Viatical Settlement Brokers
- Bridge
- American Life Fund
- Life Insurance Settlements
VIATICAL MARKETING COMPANIES
There are lots of marketing companies posing as top viatical settlement companies but are not licensed and often serve providers to generate customers. Do your research and ask if they are a licensed entity.
Understanding the Process & Taxes
As mentioned, viatical settlement transactions are similar to real estate or selling a home. The average policy sale can take 3-6 months to close before proceeds are paid out. Tax to your tax & financial advisor to plan the proceeds appropriately. Assuming you’re eligible and have an idea of what viatical company you want to work with, here is a process outline and some tax considerations;
VIATICAL SALES PROCESS
- Application
- Offer(s)
- Closing
- Transfer Funds
VIATICAL TAX CONSIDERATIONS
- You’re typically not taxed on the amount you paid into the policy called your cost basis (see examples below)
- Viaticals are considered tax-free for terminal illnesses and/if rolled into a long-term care or other medically necessary vehicles
- Not tax advice: Check with your tax professional, state and federal tax offices.
Real Life Examples
MEET JIM
Jim was 58 when he was diagnosed with renal kidney disease. The best hospital for him was out of state, he was self-employed and the costs incurred made him contemplate selling his family home. After doing a bit of research on illness financial options, Jim learned about viaticals and realized he had a renewable term policy for $250,000. He contacted a viatical settlement broker who was able to help Jim successfully sell his policy for $50,000 to help cover costs and keep his home.
MEET JILL
Jill was a stay-at-home mom with a husband and three children when she found out she was diagnosed with a life-threatening cancer. Jill had a $300,000 whole-life policy with only $20,000 in cash value. She was able to sell her policy for $160,000 and spend her final days enjoying her family like never before.
– Martin Luther King, Jr.
FAQ’s
Who benefits from a viatical settlement?
Those who benefit from a viatical settlement include the seller of the policy, the viatical broker & the buyer of the policy called a provider (investor).
Who buys viatical settlements?
Those who buy viatical settlements are investors called providers who are specialty regulated life insurance companies who buy the policies from the insured.
What is the purpose of a viatical settlement?
How much do viatical settlements pay?
Additional Resources
Viatical settlements are a safe option for anyone under the age of 65 or over looking to get money out to their existing policy to help cover the things that matter most. Although a viatical is not for everyone, it’s important to consider all your options to get the help you need. If you have any questions regarding the resources below contact one of our licensed viatical settlement agents.
Overall, viaticals are a powerful financial tool, yet confusion and outdated information often obscure their potential to benefit those facing difficult situations.Â
Ellis P. – FL.
Viatical Links
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