As you reach a certain age or encounter a certain type of personal and financial position, you may start to hear about something called a “viatical settlement.” That’s not necessarily an everyday term, though, so you might be a little curious. What is a viatical settlement, exactly, and what is the primary feature of a viatical settlement? Why would someone like you want to get a viatical settlement, and how can you be sure that doing so is the right call?
Never fear. The answers to all of these questions are below. Just read on and learn more about viatical settlements and how they might be able to transform a financial jam of yours into a brighter future for yourself and your loved ones.
What Is A Viatical Settlement?
A viatical settlement is the sale of a policy owner’s existing life insurance policy to a third party for more than its cash surrender value, but less than its net death benefit. Such a sale provides the policy owner with a lump sum.
How Does A Viatical Settlement Work?
Through the sale of one’s life insurance policy, the policy holder will receive a lump sum cash payment to use as they wish.
The new owner will assume responsibility for paying the monthly premiums and will receive the death benefit upon the insured’s passing.
A viatical settlement can help alleviate the burden and stress that medical bills or any other type of debt can impose. Or is can provide funds for other priorities, giving you the chance to enjoy quality time with your loved ones.
What Is The Primary Feature Of A Viatical Settlement?
(The primary feature of a viatical settlement is the prepayment of a reduced death benefit.)
Naturally, a viatical settlement is not free money. So what are you giving up on your end? In this case, it’s your life insurance policy, explain the experts at one trusted viatical settlement company. The payout that your beneficiaries would get when you pass away will instead be paid to the new owners of the policy (they’ll cover all future premiums, too).
If you have been paying into a life insurance policy for years, then you should have a pretty decent payout waiting for your beneficiaries when you pass away. But, sometimes, that payout isn’t worth nearly as much to you and your family as a similar amount of cash would be now.
Actually, cash is always worth more now than it is later. That’s thanks to the time value of money, which considers things like inflation and the fact that money you have now can be used to do things that increase your net worth later, like investing in a hot stock or simply paying a bill that would otherwise balloon into debt with interest. A viatical settlement will account for this by having the cash payment be a bit less than what the eventual life insurance payout will be worth.
Who Qualifies For A Viatical Settlement?
The main purpose of a viatical settlement is to provide financial relief to a person who’s struggling with very specific health circumstances. Because of this, the primary requirement is that the insured is terminally or chronically ill. This will need to be supported by medical records.
The policy needs to be at least two years old, and have a face value of at least $100,000. The health condition, its stage, policy insurance premiums, and other variables, can also be taken into consideration to define if a person is eligible.
Pros and cons of a Viatical Settlement
Before making any big decisions, it’s always important to have a complete understanding of the pros and cons. Always remember that our friendly Policy Guides are happy to further explain transaction details and help walk you through any of your questions.
- If qualified, you will receive an immediate lump-sum cash payment that will be greater than the surrender value of the policy.
- Premium payments will no longer be required from the policy owner.
- The payout can be used however you desire without any restrictions. Whether you want to take the trip of your dreams or pay for medical bills, the decision will be entirely up to you.
- While viatical settlements have proven to be a beneficial transaction for a policyholder, it is important to first understand if your policy contract includes features such as an Accelerated Death Benefit.
- Proceeds from the sale could impact eligibility for Medicaid.
- The beneficiary of the policy will change to the new owner.
Why Choose A Viatical Settlement?
Life insurance is a good idea primarily because it provides a safety net for your loved ones in case of your untimely death, particularly when you’re still working and earning money to support your family. As you grow older, the eventual payout will look a bit less essential. Meanwhile, you may encounter expenses that require cash now — particularly medical bills, which are what viatical settlements are really designed to address.
We won’t be around forever. While we’re here, we want to enjoy our lives and, as much as possible, protect our finances and ensure that we have something to leave behind for our loved ones.
Medical bills can be disruptive to these goals. And, as we grow older and battle health issues that may include terminal diseases, it becomes a bit easier for everyone to know when the health insurance payout is likely to arrive, which makes it easier to cut a fair deal in a viatical settlement. Under the right circumstances, a viatical settlement can be the best of all possible worlds. It’s a savvy financial move that will give you and your estate more wealth long-term while also giving you the cash you need now to pay down your bills and, hopefully, enjoy yourself. That primary feature of a viatical settlement — the cash — can mean so much more than just dollars and cents. It can mean a more beautiful life for as long as you’re around to enjoy it.
Considerations Before Opting For A viatical
Although it can be a relief for terminally or chronically ill people, a viatical settlement does have features to consider before making a decision.
1: Taxes on a viatical settlement: In most cases, a viatical settlement for the terminally ill is viewed as an advance of the policy death benefit, and proceeds are not taxable. In addition to IRS guidance, it is important that sellers understand their state’s taxation regulation. It is advisable to consult with a professional tax advisor.
2: Transaction Costs: It’s always important to be aware of all the possible costs a viatical settlement transaction can represent. Most states require disclosure of all commissions and fees, but it’s important to double check for undisclosed fees before a sale is closed.
3: Creditors: If you have outstanding debt, the proceeds from the sale of your policy may be subject to the claims of creditors. Be sure to discuss this with your financial institution to better understand if your payout could be compromised.