Imagine turning your life insurance policy into an immediate cash payout. That’s the power of a viatical settlement. For individuals facing a terminal or chronic illness, this option offers crucial financial relief when it’s needed most. But what is the primary feature of a viatical settlement? It allows you to sell your life insurance policy to a third party in exchange for a lump sum, giving you immediate access to funds without the burden of future premium payments. Whether you’re looking to pay off medical bills, cover living expenses, or simply reduce financial stress during a health crisis, a viatical settlement can provide a much-needed solution. Discover whether this option is right for you in our detailed guide.
Key Takeaways
- What is the primary feature of a viatical settlement? A viatical settlement allows a terminally or chronically ill policyholder to sell their life insurance policy to a third party for a lump sum payment.
- What are the primary benefits of viatical settlements? Viatical settlements provide quick access to cash that can be used for medical expenses, living costs, or personal needs during a serious illness.
- What are alternatives to a viatical settlement? Alternatives include policy loans, accelerated death benefits, life settlements, or surrendering the policy for its cash value.
If you find yourself wondering about viatical settlements and how they can benefit your life, consider the following key points:
- The primary feature of a viatical settlement is that it provides the policyowner an immediate financial payout by selling their life insurance policy.
- Other primary benefits include accessing your funds immediately, using the money to pay off bills and debt, and even funding other experiences you’ve always wanted to try.
- Alternatives to a viatical settlement include policy loans, surrendering the policy, life settlements, and accelerated death benefits.
What is a Viatical Settlement?
A viatical settlement is the sale of a life insurance policy from a policyowner to a licensed third-party buyer under the conditions that the insured is chronically or terminally ill with a life expectancy of two years or less. When the policyowner sells their life insurance policy in a viatical settlement, whether they are the insured or if the insured is a different individual, they relinquish their responsibilities with the policy. This includes policy management and premium payments that are taken over by the buyer, who becomes the new policyowner. This also means that the beneficiary roles will change, and the licensed buyer will receive the death benefit instead of the original beneficiaries. Find out more about viatical settlements and how they work.
Who Qualifies for a Viatical Settlement?
To sell your life insurance policy in a viatical settlement, you must meet specific criteria. The insured on the policy must either be chronically or terminally ill with two years or less of a life expectancy. If the insured is chronically ill, they must not be able to perform at least two activities of daily living (ADLs), which include: feeding, dressing, grooming, walking, toileting, bathing, and transferring. You can only proceed with a viatical settlement if you have valid proof, such as a doctor’s note, that confirms your life expectancy and that you are terminally or chronically ill.
Other factors that can affect a viatical settlement include your remaining premium payments, policy size, and type of policy.
- Premium Payments: If the remaining premiums are too high or there are too many payments to be made, it might be difficult for a third-party company to purchase the policy.
- Policy Size: A larger life insurance policy with a death benefit greater than $100,000 will be more enticing to buyers.
- Policy Type: Permanent or convertible term policies are more likely to be purchased due to the ongoing coverage that a regular term policy does not have. Term policies can sometimes be converted into a more permanent policy, which may then be used in a viatical settlement.
Primary Features of a Viatical Settlement
- Immediate Cash Payout: Emphasize the primary feature of receiving a lump sum payment upfront, contrasting it with the traditional death benefit payout of life insurance.
- Discount to Face Value: Explain how the payout is a percentage of the policy’s face value, typically ranging from 50% to 85%, depending on various factors.
- Elimination of Premium Payments: Highlight the benefit of no longer needing to pay premiums on the policy once it’s sold.
- Relief from Financial Burden: Discuss how the funds from a viatical settlement can be used to cover medical expenses, debts, or other financial needs.
- Peace of Mind: Explain how knowing that final expenses are covered can provide peace of mind for both the policyholder and their loved ones.
There are many features of a viatical settlement. Here’s a list of the most beneficial features you can find in a viatical settlement:
- Immediate Cash Payout: When you sell your policy in a viatical settlement, you will receive a lump sum payment upfront, which you can access immediately for your needs. This differs from a traditional death benefit, where your beneficiaries would receive the full death benefit of the policy after you pass away.
- Higher Payout than CSV: When you receive a viatical settlement payout, it’s typically more than the Cash Surrender Value (CSV), but less than the death benefit value, giving you the most cash value for your policy.
- Elimination of Premium Payments: After you sell your policy, you will no longer have to deal with premium payments as the buyer takes over those responsibilities.
- Relief from Financial Burden: Receiving an immediate cash payout can provide significant financial relief if you need access to funds for medical bills, debts, and any other expenses you may’ve incurred throughout your life.
- Peace of Mind: Once you receive your cash payout, you can rest assured that your premiums will continue to be paid without needing to do anything, and you will have a windfall of new money to use however you like.
Alternatives to Viatical Settlements
While viatical settlements can be a valuable option for those with terminal or chronic illnesses, they’re not the only financial solution available. Other forms of life insurance for terminally ill individuals may also provide financial relief, depending on your specific policy and situation. Exploring all available choices ensures you make the most informed decision based on your personal needs and financial goals. Here are some additional options for you to explore:
- Accelerated Death Benefits (ADB): Many life insurance policies offer ADB, which allows policyholders to access a portion of their death benefit while still alive, typically due to a qualifying medical condition.
- Policy Loans: Some life insurance policies allow you to borrow against the policy’s cash value, offering immediate funds without selling the policy.
- Life Settlements: Similar to viatical settlements, but typically available to older adults who are not categorized as terminally ill, life settlements allow the sale of a life insurance policy for more than the surrender value.
- Policy Surrender: You can choose to surrender your life insurance policy entirely in exchange for its cash surrender value, though this usually results in less money than a settlement or loan.
Each option has its own pros and cons, so it’s crucial to speak with a financial advisor or settlement specialist to evaluate what works best for your situation.
Accelerated Death Benefits (ADBs)
Certain life insurance policies allow you to add an Accelerated Death Benefit rider, giving you access to a portion of your death benefit based on your life expectancy. The key feature of the ADB is that you can access a portion of your life insurance death benefit while still alive. This could help cover medical expenses and other end-of-life care you could need. In this case, your policy would need to remain active —premium payments would still be due — and the policy would still provide a portion of the death benefit to your beneficiaries. The amount your beneficiaries would receive upon your passing would be less than the original value since you used the ADB rider to take out a portion of the death benefit. To find out more about an Accelerated Death Benefit, read this ADB guide.
Viatical Settlement
If you don’t qualify for a viatical settlement, looking into a life settlement is an excellent opportunity. With this option, you can still sell your life insurance policy for cash if you no longer need it or can’t afford to keep up with the premiums. When you sell your policy through a life settlement, you receive a lump sum payment greater than the policy’s cash surrender value. There are also no restrictions on how you use the funds. This means you can use the money to pay bills, fund long-term care, or travel the world. Life settlements are a solution to receive immediate cash to help cover your expenses if a viatical settlement is not an option.
Policy Loans and Partial Surrenders
With a policy loan, you can borrow against your policy’s cash value, which gives you the flexibility to repay the loans on your schedule. Additionally, the money you use to repay the loan essentially goes back into your policy, instead of toward high interest rates a bank would otherwise charge you for a traditional loan. You can also partially surrender your policy, allowing you to withdraw a portion of your cash value without entirely giving up the policy. A partial surrender can only occur with a permanent policy since term life insurance doesn’t have cash value. It is also important to note that you’ll reduce some of your death benefit and the remaining cash value with a partial surrender. The benefit of both options is that you have quick access to funds without selling your policy.
Is a Viatical Settlement Right for You?
When assessing if a viatical settlement is right for you, it’s essential to understand your financial situation and whether you meet the requirements for a viatical settlement. If you are terminally or chronically ill and need money to pay medical bills or even fund a once-in-a-lifetime vacation, a viatical settlement could be the answer. So, what is the primary feature of a viatical settlement? It allows you to convert your life insurance policy into a lump sum payment, offering fast financial relief when you need it most. However, before considering one, be sure to understand that you must meet specific criteria related to life expectancy, policy size, and policy value. Once approved to sell your policy, you’ll gain immediate access to cash to use for any expenses in your life.
Be sure to consult with a financial professional or a tax or legal advisor specializing in viatical settlements to ensure you know what is best for your financial situation. These experts can help you navigate the complexities of life insurance for terminally ill individuals and ensure you’re making the most informed choice. They can also assist in researching multiple providers so you can compare offers and select the one that’s fairest and beneficial. Learn more about viatical settlements at Coventry Direct today!
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