Viatical Settlements In-Depth

T

he name “Viatical” probably sounds foreign and in many ways it is! Interestingly, not many people know about Viatical Settlements and when explained plainly as, “it’s the sale of a life insurance policy to an 3rd-party investor”, it makes sense but then we wonder, how does a Viatical Settlement actually work? Well, we at Bridge did all the heavy lifting for you to explain these important details which will help give you the information you need to determine if a Viatical Settlement is right for you or some one you know. This is a very exhaustive guide, but for the “lite” version, you can visit, “The Viatical Settlement Beginners Guide” or for faster answers, visit “The Viatical Settlements FAQs Page“. Follow along as we take an in-depth look at how Viatical Settlements work and why they are important for folks who need them the most!

Viatical Settlements Explained

The definition: “A Viatical Settlement is the legal sale of an in-force, life insurance policy that is owned by a person of any age with a critical/chronic illness and sold to a third-party investor for a lump sum, normally exceeding the surrender value but less than the death benefit”.

The person selling the policy (ie: the Policy Owner) is also known as a ‘Viator’ who’s illness must be verified (by a Physician) in order to enter into a legal, Viatical Settlement contract. The buyer of the Life Insurance policy from the Viator is called the Investor. The Investor is known as a ‘Provider’ who has met the legal requirements to purchase life insurance policies (known as a Longevity Asset and/or Security). A Viatical Settlement Broker, like us, has a fiduciary responsibility to the client’s best interest by speeding up the process to underwriting while negotiating the best offers. The Viatical Settlement Provider, makes a cash offer to purchase the Life Insurance policy from the Viator usually above surrender value but less than the death benefit, as mentioned. If the offer is accepted and the is policy sold, the policy becomes “viaticated”, or legal property of the Provider and the Viator collects the lump sum to spend however they choose. The Provider will continue to make premium payments on behalf of the Viator and will collect the benefit proceeds upon the death of the Viator. Although Viators may sell a portion of their policy and retain some death benefit, usually the beneficiaries do not receive any portion of the death benefit. A Viator may be given special tax considerations on the proceeds but you should talk with a tax professional.

First-off, a Life Insurance policy is considered ‘real property’ (like a house, or a car) which can be bought and sold. Although most do not think of their life insurance policy this way, they should, considering the potential value it may hold. There is no doubt, opposition from Life Insurance companies in regard to the secondary market but considering that Life Insurance companies have been the only, sole ‘buyer’ of their own policies, it levels the playing field. In general, people buy Life Insurance for different reasons at different stages of life. Often, the initial intent of the policy changes over time (ex: to cover debt). In the case of Viatical Settlements, think of the surmounting medical costs some folks face when dealing with an unfortunate, critical illness like stage 4 Cancer and think of the windfall of relief offered by a Settlement to help with these family burdening costs. It is not uncommon for Settlement offers to compare to that of selling a home! Even policies with Accelerated Death Benefits may not offer the value of a Viatical Settlement. As you can see, Viatical Settlements do solve a real need for people and can benefit some who choose to sell their policy.

Additional Benefits of Viatical Settlements

• Pay Medical Bills – Peace of Mind.
• Pay Other Liabilities – Remove Financial Worry.
• Amplify Retirement – Relax and Reflect.
• Enjoy Final Days – Make Memories.
• Investing & Giving – Spread Joy.

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Viatical Settlement Example

A male, age 39 is diagnosed with a rare form of deadly cancer and is given less than 3 months to live. He owns a $500,000 term life insurance policy. He sells the policy to a Provider for 75% of face or $375,000 to pay for medical bills and enjoy his final days.

A couple of things to notice; the age of the beneficiary can be of any age, the disease was certified critical. The policy was a term policy. The payout was higher than average given the severity of the cancer and near-certain life expectancy.

Viatical Settlements Regulation

In this section we will go over the general regulations of Viatical Settlements. As of current, 43 out of 50 states have some sort of regulation around the market. Although the regulation is not universal, the industry has started to grow legs thanks to state legislators and the offices of Financial & Insurance Regulation. Associations like, the National Association of Insurance Commissioners (NAIC) and The National Council of Insurance Legislators (NCOIL) draft Model Acts help define the market and make it easier to integrate policy. Other organizations such as Life Insurance Settlement Association (LISA), National Association of Settlement Purchasers (NASP) and the Institutional Life Markets Association, Inc. (ILMA) also work to help protect the industry, investors and ultimately, the people from deceptive practices like Stranger-Originated Life Insurance (STOLI) which is a fraudulent practice of defrauding Life Insurance Companies and preying on the innocence of laypeople. Although STOLI has been associated to the industry, the two are not the same! The industry has unfortunately been tethered to this negative stigma, in part due to regulation and lack of institutional capital to name a few. As of recent, a real shift has taken place to offer more consumer education and transparency around Viatical Settlements. For example, some states now require Life Insurance companies to disclose a Viatical Settlement option. The Viatical Settlement industry is not a newborn, laws enacted as early as 1855, and more notably, the 1911, U.S. Supreme Court case, Grigsby v. Russell, finding in favor of secondary policy sales. However, it wasn’t until the 1980’s AIDS crisis, that mainstream use of case law provisions took hold due to the predictability of life expectancy. We go into more detail about the history of Viatical Settlements at the end this page. The purpose of this section is to only provide a general understanding of the past and current regulation surrounding Viatical Life Settlements. Following our transaction scenario above, we will define the roles of the Policy Owner also know as a, ‘Viator’ in a Viatical Settlement transaction.

The Here is a current map of U.S. state regulation;

The Policy Owner (Viator) for Viatical Settlements

Let’s revisit again, the definition of a Viatical Settlement, “…the legal sale of an in-force, life insurance policy that is owned by a person of any age with a critical/chronic illness and sold to a third-party investor for a lump sum, normally exceeding the surrender value but less than the death benefit”. An important aspect of Viatical Settlements is that there is no “age restrictions” unlike a Life Settlement that is reserved for seniors over the age of 65 year of age. You may be wondering, what is the difference between a critical illness and a chronic illness? Aren’t they the same thing? Well, according to the law, it is not the same and how the proceeds of Viatical Settlements are treated may differ in each state. Although we will review Viatical Settlement Tax laws later, we suggest if you are considering a settlement, to consult with you fiduciary about the Viatical Tax laws in your home state and/or more specifically, the state in which the life insurance policy originated. Here is a basic Viatical Settlement comparison guide to help you understand the differences between critical and chronic illness. One of these conditions is required in order to qualify for a Viatical Settlement company to purchase your life insurance policy.

Terminal / Critical Illness

An individual is said to be terminally ill if certified by a physician that the illness or physical condition will reasonable be expected to result in death within twenty-four (24) months from the date of the certification. If a policy is sold to a provider from a person with terminal illness, the Internal Revenue Code (IRS) generally views the proceeds as tax exempt.

Chronic / Long Term Illness

An individual is said to be chronically ill if certified by a licensed health care practitioner within the preceding 12 month period as;

1. Unable to perform at least ADL’s (activities of daily living) without substantial help for 90 days due to loss of functional capacity.
2. Needing substantial supervision due to severe cognitive impairment. Depending on the conditions met, tax law may treat the proceeds exempt from federal taxation.

For additional Viatical Settlement tax implications including Long Term Care expenses & Estate Tax reform, see Viatical Taxation section below.

But how does a Viatical Settlement company get the medical records from the Viator? In short, the Viator provides a signed authorization to contact and obtain medical records (under HIPPA authorization) from each and every associated doctor called a ‘Physicians Statement’ which verifies the seller’s current health status. In the section below titled; “Viatical Settlement Underwriting Guidelines”, we explain how a Viatical Settlement works and the approval process through a series of documents, disclosures and verifications.

In addition to medical records, the Viatical Broker and/or Provider will request the Viators medication and/or formulary which is a weighted factor when determining the Viatical sale. After all, a life insurance policy is an investment to the investor. Did you know in most states Viatical sales are actually considered a security and falls under financial regulation? Now that you have a better understanding of the Viators role within the settlement transaction, let’s switch gears to review the policy itself.

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The Life Insurance Policy for Viatical Settlements

Moreover, the definition further states; “…the legal sale of an in-force, life insurance policy…”. You might be thinking, what does in-force mean? Piece by piece, we will expound on this definition.

Starting at the inception, before a life insurance policy is “born into existence” there needs to be this tangible consideration called, “insurable interest”. Insurable interest are the means by which a life insurance contract are considered valid. Simply, this means that the person purchasing the policy is buying it for ‘legit purposes’. An example of valid insurable interest would be buying life insurance on an individual’s own life or a spouse’s life because it is considered a vested interest (not for profiteering). Unlike buying a life insurance policy on your next door neighbor which the industry calls, a “stranger”. Later on, we will go over Stranger Owned Life Insurance (STOLI) with is not to be confused with a valid, legal Viatical or Life Settlement sale. Most life contracts contain a clause known as a, “contestability period” which is that window of opportunity where courts will recognize a life insurance carrier’s attempt to appeal the legal trust of a policy. Put differently, this allows the life insurance carrier to contest or “challenge” the validity of the Policy Owner’s insurable interest. Notice, I did not use the phrase ‘Viator’ because a life insurance policy is not initially purchased to be sold and thus lacks the maturity. The way the terminology works is that, a policy is said to be a viatical (preemptive) for the purposes of viatication (selling it) until it becomes viaticated (sold). Not all states regulate contestability. Generally, most contestability periods last at least 2 years or more and some contracts exclude them all together as mentioned above. Without a contestability period, life insurance companies can have their cake and eat it too. A Life Insurance company could decide to keep all the premium payments and then evaded the death benefit in court under fraudulent claims. Here are other litigations against insurance companies;

• John Hancock Settles Life Insurance Class Action for $91M (2018)
• Phoenix Pays $48.5 Million To Settle Class-Action Suits (2015)
• AXA 70% COI Increases Lawsuit

Furthermore, the “legal sale” aspect of the definition, encompasses more than just the legality of the life insurance policy itself. As mentioned previously, a majority of states do regulate Viatical Settlement commerce and capitulate between financial securities and insurance governance similar to variable annuities. Interestingly, a sold life insurance policy is considered a security and/or a principal asset class which has garnered the attention institutional investment firms and scholarly preambles (Wharton). Now that we deconstructed the legal properties of our definition, let’s review the in-force aspect of the life insurance policy.

When a policy is said to be, “in-force” it basically means it’s currently active (paid) and in good standing (been paid on-time or paid up). The policy should not be in a state of lapse or in a grace period. The viatical settlement process can take time (months) because every case is different and a short time horizon is yet to be realized. However, it’s not uncommon for Providers and Viatical Settlement Broker to provide general quotes within a 24-hour to one (1) week period.

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Health Classification for Viatical Settlements

Since we are on the topic of premium payments, a good buying signal for the Providers who purchase the life insurance policy is the insured’s initial underwritten health class because the better the health, the lower the payments. Remember, investors are paying for the policy premiums after it’s been sold up until the death of insured. It doesn’t matter an individual’s current health status, it’s what their health was when they purchased the policy that counts. However, that doesn’t mean Providers will turn down standard health classes because each insurance policy is unique. Here are some examples of health classes; Preferred Plus, Preferred, Standard Plus and Standard. Sub-standard is not a typical health classification rather Standard is denoted within a table rating system of alphanumerics.

Life Insurance Conversions for Viatical Settlements

An important element to keep watch of on a life insurance policy is the conversion date which outlines the ability to convert the policy from say, a term to a whole life product. Conversions can be based on policy anniversary dates, number of years or other time factors. Sadly, many folks miss out on the conversion window of opportunity because clients find it hard to read or understand the contracts, or the Agent and/or Life Insurance Company goes incognito (leaves or sells). Missing this opportunity could cost you and it’s highly advisable that you reach out to Bridge to review your policy to get an unbiased review. Part of the problem of poor policy management on behalf of Life Insurance companies has to do with flawed expectancies and decades of paper contracts. While digital policies will be easier to manage in the future, older paper contracts are more difficult to resurrect. People have to be very careful they don’t “give way” to the pressure of some life insurance companies sending what seems like a ransom letter to change their core policy or take an increase in premium because of an expired rider. We have seen this happen first hand, the client signed the new policy and at that point it was too late to offer a life settlement. We are often asked, does a term life insurance policy qualify for a Viatical Settlement? Let’s go over the common policies that can be sold to Providers.

The common types of policies that sold for a Viatical Settlement include (but are not limited too);

• Term Life Policies
• Whole Life Policies
• Universal Life Policies
• Universal Life Policies
• Term Life Insurance
• Variable Life Insurance
• Variable Universal Life Insurance
• Indexed Whole Life Insurance
• Group & Survivorship Life Insurance
• Key Person Life Insurance

No matter what kind of policy you own, don’t hesitate to get your policy appraised because it doesn’t take much time to get a free quote with Bridge. You will get an estimated offer if your policy has potential and/or within 1-2 business days. Which leads us to our next important factor of the policy…the face amount.

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Face Amounts for Viatical Settlements

The face amount is one of the top value drivers for selling a life insurance policy because that is one of the main reasons why investors are buying the policy. It’s not really in a Providers best interest to buy a policy with a face value of less than $100,000 because of the overhead costs. Typically, Providers are looking for face amounts above $200,000 to be fair to the market. However, it really depends on the policy type and if it can be converted or the life expectancy/health of the insured. For example, if a person has less than 6 months to live with a favorable policy and smaller face amount and upcoming conversion option, it may very well sell quickly. At Bridge, we don’t discriminate. Send us your policy and well help evaluate with you at your convenience.

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Cash Value Policies with Viatical Settlements

Policies with cash value are considered whole life policies. The cash value is taken into consideration when purchasing a life insurance policy but it’s not the most important factor. The cash value is owed premium back to the insured. The goal of Viatical Settlements is to offer more than the just the cash value of the policy and more than the surrender value. Most whole life policies return the premium paid into the policy as a living benefit. Sometimes the cash value is too high to be sold for a settlement. In that case, selling the policy back to the insurance company may be your best option. Contact us to help you evaluate your policy.

In-Force Illustration for Viatical Settlements

Since we are still on the topic of the policy, one of the documents needed with a Viatical Settlement Application is an In-Force Life Insurance Illustration. This is a document that comes from your insurance carrier and projects the costs of insurance to prevent the life insurance policy from lapsing. It should show the minimum level premiums to maintain the death benefit through maturity, solving for $1000 of account value at maturity.

At this point, we have exhausted the topic of the policy for purposes of this page. Although, there are nuances and other factors that play into a settlement, check back on our website for future content and Viatical Settlement policy examples. So far, we have explained the role of the Viator and the policy. What about the buyers side of the equation? Who are these Providers and Viatical Settlement Brokers?

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Viatical Settlement Brokers

Since there is not a whole lot we can say about Viatical Settlement Brokers, we will review their role first before the Providers for brevity. Bridge is a Viatical Settlement Broker which means we mediate between Viators and Providers. In essence, we put buyer and sellers together for a commission. Viatical Brokers are important because they protect the Viator (seller) interest. Settlement Brokers have a legal obligation to act in the best interest of the Viator unlike the Provider who does not have a legal obligation. This legal obligation is called a “Fiduciary Duty” but comes with it “Fiduciary Risk”. As a licensed, Viatical Broker one of the requirements is two fold,

1. A state active, Life Insurance License AND
2. A Viatical Settlement Brokers License.

As a Viatical Broker, we run all the quotes. We do all the upfront work of gathering policy information, documenting signatures, health questionnaires, managing expectations, facilitating on behalf of the Provider and ultimately negotiating the best offers on behalf of our clients. A good Viatical Broker will go above and beyond to earn your business! Bridge compares all the Best Viatical Settlement Companies saving our clients time, money and energy! Don’t go at it alone, work with a Bridge agent today and get the best offers!

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Viatical Settlement Provider

Viatical Providers are on the “buy side” of the viatical transaction. In the early days, these were smaller pools of individual investors but nowadays larger institutional investors have entered the market of longevity assets. These licensed Viatical Investors hold a large portfolio of life insurance policies to the point that no individual one policy effects the overall Assets Under Management (AUM). Viatical Settlement Providers may differ in the capability of purchasable policies. Since not all states regulate the industry, some Providers are not required to have a securities license. Now that we have identified the main parties involved in a Viatical Settlement, let’s turn our focus to a typical transaction scenario.

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Top Best Viatical Settlement Providers

Here is a list of the top Viatical Settlement Providers. Bridge compares all these providers to save your time and negotiate the best offers!

• Magna Life Settlements
• Abacus Life Settlements
• Coventry
• Life Settlement Group Inc.
• Life Equity

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Other Parties in a Viatical Settlement

Most of the time, selling a life insurance is a family affair. Family’s are very concerned for the health and well-being of the Policy Owner especially considering their unfortunate health. The Viators beneficiaries are also affected in the process. Additionally, a Viator’s CPA, Attorney, Financial Advisor (FA), Fiduciary, Trust or the like may get involved but it’s not required since it’s the Policy Owner’s will. hat about the proceeds of the settlement? Let’s go over the lump sum benefits offered to the Viator when the policy is sold.

Proceeds of a Viatical Settlement

The most common questions people ask who are interested in a Viatical Settlement are; how much can I sell my life insurance policy for? How much is my life insurance policy worth? These are great questions to ask and although you may get a estimate in a short period of time, it’s not until the insured has been fully underwritten to determine the true offer, minus costs (taxes & fees). According to LISA, The amount received from selling a policy will always be greater than the cash surrender value and less than the death benefit value.” It’s not uncommon for an eligible policy to pay between 5% to 50% + or more of the policy face amount. For example, a $200,000 eligible policy could pay between $50,000 to $100,000. The proceeds may be used by the Viator however they see fit. Talk to a Tax Professional to see if you qualify for any deductions. More on tax later!

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Viatical Settlement Alternatives

Are there any alternatives to a Viatical Settlement? The answer is yes, there are a few alternatives although not all life insurance polices may qualify. Here are some Viatical Settlement alternatives;

Policy Loans

Another example of an alternative to a Viatical Settlement is called a policy loan. Most states require a Policy Loan Provision for cash value, whole life insurance policies. Typically, within prescribed limits, policyholders can borrow against the cash values of their policies if they choose. Although called a loan, it’s not your typical loan because they cannot be “called” by the company and repayment subjective. A policy loan is actually an “advance” of the death benefit by which any unpaid principal and/or accrued interest is deducted from the proceeds upon the death of the insured. Which leads us to our next alternative to a viatical settlement which is a cash surrender.

Accelerated Death Benefits

Accelerated death benefits (ADB) offers another alternative to a Viatical Settlement. An ADB is a policy provision that allows the insured to take a portion of the death benefit if the insured qualifies with a life-threating illness or severe disability. Accelerated Death benefits may incur an interest charge. The remaining balance (minus loans) may be payable to the beneficiary. The payout can be in a lump sum and unlike a Viatical, the payout may also be paid in installments. Here is some additional information about Accelerated Death Benefits considering they are a contender to a Viatical Settlement.

Example of Accelerated Death Benefits

Here is a simplified example of Accelerated Death Benefits (ADB) for a terminally ill insured with $250,000 policy. If the ADB is 75%, the benefit payable would be $187,500 with a remainder of $62,500 available to the beneficiary upon the death of the insured.

Detailed example: $600,000 policy. A 50% accelerated death benefit claim or $300,000. The insurance carrier will charge a fee for opportunity cost and expenses out of the 50% ADB. This means out of the $300,000, minus fees, with a new payout of 70% ADB amount, or $210,000. The insurance company keeps $90,000. You will also be charged a lower premium on the remaining policy balance of $300,000. The remaining balance could possibly be sold through a Viatical Settlement as well. Contact Bridge for more information.

Accelerated Death Benefits vs. Viatical Settlements

What is the difference between Accelerated Death Benefits (ADB) and Viatical Settlements? Here is a brief, comparison;

Accelerated Death Benefits

ADB is a provision in the life insurance policy that allows the beneficiary to receive an upfront cash payout from the life insurance company, while still retaining a death benefit. The retained death benefit means that the policyowner will continue to pay premiums on the reduced amount. Typically, the payout of a ADB is more than a Viatical Settlement.

Viatical Settlement

Conversly, a Viatical Settlement would make more sense to the policyowner if the policy did not have ADBs in their policy or if the policyowner did not want to continue paying premiums or no longer needed the policy.

As you can see, ADB Provisions are somewhat similar to Viatical Settlements and if available may be a better option for the client.

Cash Surrender

Cash surrender can also be an alternative to a Viatical Settlement. This option is called a non-forfeiture option which means, by law, the policy owner is entitled to the accrued cash value of the policies in an immediate cash payment. As the name implies, the policy owner “surrenders the policy” back to the life insurance company. If you own a cash value policies, the contract should display the table values under “Cash or Loan Value”. Normally, this option is available within three years and the proceeds could take up to six months after a request of surrender. Talk with the carrier for details.

Life Settlement

A Life Settlement could be another alternative to a Viatical Settlement if the insured qualifies. Life Settlements are similar to Viatical Settlements since both services offer the sale of a life insurance policy. To qualify for a Life Settlement, the insured must be above the age of 65 years old with a change of health. Conversely, some policies may not even need a change of health! If you have more questions, check out the Life Settlements FAQ Page

At this point, we have reviewed all the various alternatives of Viatical Settlements that are offered to policyowners. In the next section, we will discuss the differences between a Viatical and Life Settlements.

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A Life Settlement vs. Viatical Settlement

Viatical and Life Settlements are similar in that, both are the sale of a life insurance policy to a Provider. However, the underwriting guidelines are very different. For the purposes of this page, we will only provide a quick overview of the differences on this topic since we already wrote a page titled, Viatical Settlements vs. Life Settlements. Meanwhile, here is a simple comparison between the two;

Life Settlements

• Age restriction over 65yrs.
• No illness requirement
• Taxed differently

Viatical Settlements

• No age restriction
• Possibly taxed deductible
• Must be certifed as Critically or Chronically Ill

This should give you a good snapshot of the differences between a Viatical and Life Settlement for more information visit the page referenced above or contact Bridge with any questions you may have!

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Viatical Settlement Underwriting Guidelines

So far, we have provided definition without going into much detail about how a Viatical Settlement works from an underwriting perspective. The Viatical Settlement underwriting guidelines can be a complex topic and too broad to define every case. As we mentioned above, a Viator needs to be critically ill, chronically ill or a combination of both. Here are some of the documents, disclosures and verifications needed to qualify for a Viatical Settlement.

Viatical Settlement Application

Before an application begins, a Viatical Settlement Broker and/or Viatical Settlement Provider will do an initial screening of the insured, health status and the policy. If the case looks viable, a Viatical Settlement Application is provided which contains a series of documents which include all of the following; (Tabs?)

Personal Identifiable Information (PII)

PPI includes name, phone number, address, DOB and similar information to verify your identity and contact you.

HIPPA Consent Form

As previously mentioned, in order to collect health sensitive data, Viatical Providers need a signed HIPPA consent form. What is a HIPPA consent form? HIPAA stands for Health Insurance Portability and Accountability Act which is a US legislation passed in 1996 that mandates data privacy and security provisions for protecting medical information of the people. As such, this is a core document needed to underwrite a Viatical Settlement because it authorizes the ability to review a Viators health history and release medical records from health professionals to confirm diagnosis. Included with the HIPPA, is a health questionnaire

Health Questionnaire

A health questionnaire is an overview of a Viators health status which not only includes health conditions but also includes lifestyle questions, medications & contact information for doctors. The Life Insurance Release must also be disclosed.

Life Insurance Release Form

A Life Insurance Release Form allows Brokers or Providers to contact the Life Insurance Carrier to request information on behalf of the policyowner like an in-force illustration of the premiums to maturity or requesting a copy of the insurance policy. The policy details also play an important part.

Policy Details

Lastly, the viatical application will include the details of the policy which may or not include the following points;

• Carrier name
• Policy type (term, universal life)
• Face value
• Cash value
• Conversion date
• Health class
• Current premiums
• Maturity date
• Specific provisions

These are just a few examples of policy details needed to underwrite a Viatical Settlement. If an application is accepted by a Provider, there will be more underwriting needed as the process can take months to finalize. In the next section, we will review the Viatical Settlement Process based on milestones.

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The Viatical Settlement Process

The process of a Viatical Settlement is like selling a home and buying life insurance all over again because on one hand, there is the sale of “real property” (ie: the life insurance policy) while on the other hand, you’re undergoing Medical underwriting to determine health status & life expectancy. Both activities involve weighing all the available information to determine if a Viatical Settlement is a good option for the Viator. Here is general idea of what’s involved in selling a life insurance policy. *NOTE: The timelines below reflect conservative estimates and is a modified version of LISA sales process. Let’s quickly review the parties involved.

Who’s involved in a Viatical Settlement?

Up to the point, we have identified all the parties involved but it’s worth repeating. The parties often involved in the Viatical Settlement process may include;

• The Policyowner(s)
• Providers and/or Settlement Brokers
• CPA, Attorney, Trustee (optional)
• Family members (optional)

Pre-qualification Discussion (1-2 days)

Normally, a pre-qualification can be completed through a simple, phone call to answer a few standardized questions about health status and the life insurance policy. In some instances, a general quote can be provided within 1-2 business days. Let’s re-review the application process.

Application (1-4 weeks)

Upon pre-approval, a Viatical Settlement then moves to the application phase which includes a more in-depth review of the life insurance policy and health verification as previously explained. To reiterate, some key areas of the application process include;

• Life insurance policy details
• Phone Health Review
• HIPPA Medical Record Consent
• In-force Policy Illustration
• Physician Consent

Afterward, the review and initial underwriting process begins.

Review & Underwriting(1-2 weeks)

After the full application has been completed, it is then submitted to multiple, Viatical Settlement Providers to receive any offers. With Bridge, clients save time with a streamlined application process and we submit the application to the best Viatical Settlement Providers to get the best offers guaranteed! Now, we review the offers!

Offer (1-2 weeks)

When all the Viatical Settlement offers are submitted to Bridge, we keep working by negotiating counter-offers and present the final offer status for the life insurance policy. Even after the offers have been accepted, the client still has the choice to accept or deny the offers up to this point. If the offer is accepted, the Provider initiates the purchase and sale agreement package.

Purchase & Sale Agreement (1 month)

After accepting the best offer, the application then goes into finalizing the Viatical Settlement transaction. This process varies by each state and is intensive because it requires additional documentation and signatures which include but are not limited to; Change of Ownership & Beneficiary, Letter of Competency, Verification of Coverage & Life Expectancy Reports. The purchasing provider will then review the docs, finalize due diligence and then countersign the package. The funds for the settlement transaction will then be placed in a secured escrow account. The transfer of funds could take longer than cashing the average check.

Transfer of Funds (1 week)

Finally, after the life insurance policy has been successfully verified and transferred to new ownership of the Provider. The Viator’s funds are deposited from the escrow account. Once funds have been received, the Viatical Settlement contract will be successfully completed. The insurance carrier is notified of the change of policy ownership and beneficiary to the new owner, the Viatical Settlement Provider.

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2019 – 2020 Viatical Settlement Tips

Taking on a Viatical Settlement alone and without a partner is like walking in unknown territory. You need a guide to help navigate you through the process. Bridge is a legal fiduciary who has a plan to help you get the best offers for your life insurance policy. Here are some quick tips for Viatical Settlements in 2019!

• Make sure your Broker or Provider is licensed by the state!
• Have your policy handy, request a copy from the carrier along with an in-force illustration.
• Have your medical information handy, with a list of names, address, phone of your doctors.
• Set your expectations low in terms of payout and timeframe.
• Ask about fees upfront.
• Talk with family and get tax/legal advice.

I hope these helpful tips about Viatical Settlements for 2019 will help you make a wise choice and net you the best offer for your life insurance policy! Although, we briefly went over viatical settlement tax, let’s review and add to this explanation in the next section.

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Viatical Settlement Tax Explained

Viatical Settlements are becoming more favorable, especially with the recent 2018 Federal Tax update, which is the first major update in 30 years! The following are some general cases of tax relief examples to help navigate the discussion surrounding Viatical Settlement. *This is not tax advice. Please consult your tax professional for more details.

Terminal & Chronic Illness

As mentioned, Viators must have a critical/terminal or chronic illness to qualify. Here is a quick run through of how the tax code may treat Viatical Settlement proceeds for Viators;

• Proceeds may be exempt from taxation based upon health condition and life expectancy.

Long Term Care and Viatical Settlement Taxation

For people who are chronically ill with long term care expenses that could not be covered by insurance, the proceeds of a Viatical Settlement may be exempt if the following three conditions are met;

1. The expenses incurred must be necessary.
2. The services must be required
3. The services must be prescribed by a health professional within the health care plan.

There are also technical requirements that must be met which include;

1. The contract under the viatical settlement must meet certain IRS requirements applied to life insurance contract buyouts, assignments or other arrangements.
2. The services must be required
3. The services must be prescribed by a health professional within the health care plan.

Viatical & Life Settlement Deductions

The new tax code further simplifies and reduces taxes by including the Cost of Insurance (COI) premiums when calculating the cost basis which was previously excluded.

Estate Tax and Viatical Settlement

How does Estate Tax Provisions effect Viatical Settlements? Some Life Insurance policies included tax planning provisions which helped shield from the transfer of estates taxation after an insured passed away. Since the 2018 tax reform, the estate threshold has doubled eliminating the need for this provision. This means a majority of US citizens are exempt from paying this tax and further voids the reason to keep their existing life insurance policy.

Medical Deductions for Viatical Settlements

An increase in Medical expense deductions over the new two years improves the landscape for settlements to meet this maximized threshold as more and more medical expenses incur.

As previously mentioned, we recommend the counsel of a tax professional before committing to a Viatical Settlement contract. As we start to conclude this page, I hope the information thus far has provided you with a good basis of Viatical Settlements and if you have any questions or corrections, please contact us at [email protected]. In our final points, we will overview the potential risks, the History of Viatical Settlements and then our conclusion.

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Potential Risks of Viatical Settlements

What are the potential risks for Viatical Settlements? Although a majority of risk lies with Providers, there are some risks to consider for consumers who may consider a Viatical Settlement. Here is a brief list of potential risks;

• 7 Unregulated States.
• Taxation risk (talk to a tax professional).
• May not be able to purchase life insurance again.
• Proceeds could lay claim to creditors.
• You may become ineligible for Medicaid.

Viatical and Life Settlements should not be confused with Stranger Originated Life Insurance (STOLI) which is an illegal practice of defrauding life insurance before the inception of the policy. The reason we are not going into depth about STOLI is an effort to distance ourselves from this industry stigma. Like any “oppertunity” people have taken advantage in the past. However, these acts has been practically irradicated and the industry mainly operates under federal regulation. Read more about STOLI here.

The History of Viatical Settlements

Did you know that selling a life insurance policy has been around for over a century! In fact, it was in 1855, when the New York Court of Appeals ruled in favor of selling a life insurance policy to a third-party. However, the most notable court case was in 1911, Grigsby v. Russell, favoring secondary policy sales and proclaiming, “The law has no universal cynic fear of the temptation opened by a pecuniary benefit accruing upon a death. (Yale, Eli Martin Lazarus, Viatical and Life Settlement Securitization: Risks and Proposed Regulation, 2010)”. Although the law was established, it wasn’t applied until the late 1980’s AIDS crisis. For a majority of victims, death was certain and the cost of medical and health treatment had skyrocketed. Soon thereafter, AIDS victims started accepting money from investors to cover final expenses due to near-certain life expectancies. It was around this time that Viatical Settlements came into public domain.

We get the name ‘Viatical’ from the Latin root ‘Viaticum‘ a Christian word which means “provision (money and/or sustenance) for a journey” as something to sustain the dying person on his last journey or “last rites”.

During the mid-1990’s the settlement market reached a breaking point as medical advancements in AIDS treatment became more available and investors shifted to senior insureds to what is now called Life Settlements. Just as the Life Settlement industry started to gain steam, the 2008 financial collapse caused investment pools to dry up coupled with flawed medical underwriting. Fast forward to today, Life & Viatical Settlement markets are growing with a resurgence of institutional investment and demand for policy supply.

Fast forward to the present day, Magna Life Settlements 2018 Industry Report, provides a bird’s eye into the future of Life Settlements with many positive indicators of growth, favorable regulation and a growing demand for seniors who are experiencing increased costs of insurance, medical bills and expended longevity. Now that we have walked through the ins and outs of Viatical Settlements in-depth, let’s conclude this page with a final overview.

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Conclusion

Viatical Settlements have been around for over 100 years and this young industry has seen its fair share of ups and downs. However, the legal landscape is shifting in favor as more and more people are see the benefits of Viatical Settlements. In this article, we reviewed the general definition of a Viatical Settlements while reviewing the defined parties involved in the viatical transaction. We did an overview of common terms, taxation, policy details and the history of viatical settlements. We hope this article helps readers understand how viatical settlements work and how to generally, navigate the process. We hope you enjoyed our review. If you think you may qualify for a settlement, read the Get Started section below.

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Get Started

Do you think you may qualify for a Viatical Settlement? If you have a life insurance policy, have been diagnosed with a critical or chronic illness, contact us at Bridge and we’ll help evaluate your case, do the due diligence and provide you with the best offers on the market by comparing Viatical Settlements online. Contact Bridge today for a free, no-risk, Life Insurance policy appraisal today!

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