Maybe you’ve heard some information about Viatical Settlement from friends & family but what exactly are Viatical Settlements anyway & how does it work within the world of Life Insurance? We consolidated & simplified all the important questions and answers to help save you time & energy!
Feel lost in the Viatical Settlement Process? You don’t have to go at it alone. Whether a family is involved or not, Bridge is here to help. We listen to our clients and as a legal fiduciary, we represent your best interest and NOT the Providers! Did you know Providers DO NOT have a legal obligation to your best interest?
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Each question links to a section on this page about Viatical Settlements;
- What is a Viatical Settlement?
- Who qualifies for a Viatical Settlement?
- What are the benefits of Viatical Settlements?
- What types of life insurance policies qualify for a Viatical settlement?
- How do Viatical Settlements work?
- What happens to my Life Insurance policy after a Viatical Settlement?
- What is the difference between a Viatical Settlement & Viatical Settlement?
- Are Viatical Settlements legal or illegal?
- What are the risks of a Viatical Settlement?
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Last Updated: 12/21/2020
What is a Viatical Settlement?
A Viatical Settlement (not to be confused with a Life Settlement Settlement) is considered a “living benefit” which gives those who have been unfortunately diagnosed with a critical illness, the legal option to sell (for cash) their active, Life Insurance policy(s) (both in-part or full amount) for “any reason” to a third-party (Institutional Investment Group) for anywhere between 50% to 80% of the policy(s) Face/Cash Value (ie: Death Benefit) which is typically greater than the policy’s cash surrender value. By offering a price above surrender value, this makes Viatical Settlements a viable option for many beneficiaries who need the money for medical bills or to enjoy their final days. There is no restriction on how the funds are spent. Generally, the proceeds are tax free (ask a tax professional). Sellers may also not be able to purchase another life insurance policy but may be able to purchase a final expense policy (burial insurance) or keep a portion of the current policy. Types of policies that can be sold include; Term, Whole Life and Universal Life Insurance Policies. We hope this answers some basic questions about Viatical Settlements. For more detailed information and common questions see below.
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Who qualifies for a Viatical Settlement?
Typically those who qualify for a Viatical Settlement (opposed to a Life Settlement) are those with a critical illness who;
- Have an active Life Insurance policy (normally over $150k in death benefit) AND
- Diagnosed with a chronic or critical illness
- NOTE: Seniors over the age of 65yrs. who have had a change in health may also qualify.
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What are the benefits of a Viatical Settlement?
Why consider a Viatical Settlement? There are many benefits and/or reasons why a Viatical Settlement is a viable option for folks with a critical illness and have an active, Life Insurance policy. Some common responses are;
- Avoiding premiums or increases from an active life insurance policy
- Convert unneeded policy to cash (financial peace)
- Cover Medical expenses, pay off debts & creditors (debt free)
- Enjoy retirement or final days (travel & leisure)
- Reinvest for heirs
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What types of life insurance policies qualify for a Viatical Settlement?
Most types of Life Insurance policies may qualify for a Viatical Settlement benefit which include, but are not limited to;
- Term Life Insurance
- Whole Life Insurance
- Universal Life Insurance
- Variable Life Insurance
- Variable Universal Life Insurance
- Indexed Whole Life Insurance
- *Group & Survivorship Life Insurance don’t qualify as easy but it doesn’t hurt to ask us!
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How do Viatical Settlements work?
How a Viatical Settlement works is like comparing the sale of a home to buying Health Insurance. On one hand, you’re selling “real property” (ie: your life insurance policy) while on the other hand, you’re undergoing Medical underwriting to determine life expectancy for the Viatical Settlement buyers. Both activities involve weighing all the available information to determine if a Viatical Settlement is a good option for you. Let’s review the details of what’s involved in the sale process of a Viatical settlement and how Viatical settlements work. *NOTE: The time lines below reflect conservative estimates and is a modified version of LISA sales process
People involved in a Viatical Settlement
First, let’s understand who is generally involved in a Viatical settlement transaction. A Viatical settlement may include (but are not limited to) the following people, professioanls and organizations;
- The Policyowner(s)
- Viatical Settlement Providers and/or Viatical Settlement Brokers
- Doctors & Medical Professionals
- CPA and/or Attorney of Estate (optional)
- Family members (optional)
Pre-qualification Discussion (1-2 days)
If you think you may qualify for a Viatical Settlement, a simple, phone call to answer a few standardized questions about your life insurance policy & health status is all we would need to pre-qualify a Viatical Settlement application. Typically this can take up to one (1) business day depending on your situation.
Application (1-4 weeks)
Upon pre-approval, a Viatical Settlement then moves to the application process which includes a more in-depth review of your life insurance policy and health verification. 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
Review & Underwriting(1-2 weeks)
After the full application has been completed, it is then submitted to multiple Viatical settlement providers who may or may not make an offer for the policy. At Bridge, we submit your offer to the best Viatical settlement providers to get you the best offers!
Offer (1-2 week)
When all the Viatical Settlement offers are made, the policy may go into further negotiations for counter offers and final offer status. We get to work on getting you highest offer for your life insurance policy. Upon Bridge providing the best available Viatical Settlement offers, the client still has the choice to accept or deny the offer.
Purchase & Sale Agreement (1 month)
After accepting an offer, the application then goes into finalizing the Viatical Settlement transaction. This process varies by each state and is an intensive process that 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 Viatical settlement transaction will then be placed in a secured escrow account.
Transfer of Funds (1 week)
After the life insurance policy has been successfully verified and transferred to new ownership. The seller’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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What happens to my Life Insurance policy after a Viatical Settlement?
After a life insurance policy has been sold to a provider (ie: institutional investor), the policy is then the official property of the provider and the previous owner and/or beneficiaries no longer hold claim to the policy’s future benefits. Once the previous owner passes away, the death benefit is rewarded to the new policy owner (ie: The provider). After selling a life insurance policy, the option to repurchase a new life policy may not be available.
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What is the difference between a Viatical Settlement & Life Settlement?
The main difference between a Viatical Settlement and a Life Settlement comes down to eligibility. Both types of settlements are essentially the same thing, “the sale of a life insurance policy”. However, a Life Settlement is the sale of a policy from seniors over the age of 65 yrs. who no longer need or want the policy. A Life Settlement is triggered when a change of health occurs or if investors are interested. As mentioned, a Viatical Settlement is the sale of a life insurance policy for anyone at any age who has been diagnosed with a critical illness for the purposes of paying for medical expenses or enjoying their final days.
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Are Viatical Settlements legal or illegal?
Viatical Settlements are not illegal. It is “legal” to sell your life insurance policy. However, not all states regulate the sale of a Life Insurance policy. For states that do regulate the sale of a life insurance policy, it is facilitated through a state’s Department of Financial Services and governing by-laws.
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What are the risks of a Viatical Settlement?
Since Viatical Settlements are both legal & regulated by most states, that doesn’t mean there are no risks to be aware of. Due to much controversy in the past and lobbying from Life Insurance companies, the Viatical settlement market is generally regulated by a state’s Department of Financial Services and governing by-laws. For example, a Viatical settlement company or seller must have a valid life insurance license while the investors must have an investor/Viatical buyer license per the state of origination of the policy in question. It’s important to ask for proof to avoid any form of scam/fraud. It should also be noted that working with a licensed broker (like Bridge) can be to your benefit beyond getting the best price but also as legally obligated to be your fiduciary unlike (some independent financial fund managers) who may not have your best interest and could offer a below market value for your policy. because a life insurance policy is just like any other real property, it can be sold or given at will. The proceeds of a Viatical settlement may be taxable and could also be subject to the claims of creditors. However, if the seller is within two (2) years of death, tax-free proceeds may apply.
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- FL225 – Health & life (including annuities & variable contracts) Study Manual Florida 32nd Edition – 2017
- offical social security
- US Medicare Wiki
- Medicare Wiki
- Medigap Wiki
- Medicare Advanatage Wiki
- CMS Wiki
- medicare interactive