Viatical Settlements Explained

Published August 31, 2020

Picture representing how viatical settlements allow terminally ill persons to sell their life insurance policies.

Table of Contents

What is a Viatical Settlement?

A viatical settlement describes the transaction through which a chronically or terminally ill individual sells their life insurance policy to a third party buyer. Due to distinct health qualifications, viatical settlements typically pertain to insureds with life expectancies of less than two years (terminally ill), or those who can no longer perform two or more of the activities of daily living (chronically ill).

Viatical settlements allow chronically or terminally ill persons to receive a lump sum of cash worth more than the policy’s surrender value but less than the death benefit. When a third-party partakes in buying life insurance policies from terminally ill or chronically ill policyowners, the policyowner receives an immediate cash payment and the buyer takes over all premium obligations and receives the policy’s death benefit when the insured dies. Viatical settlements have a variety of distinct features and benefits. Every case is different, but this article breaks down the basics—what viatical settlements are, why you should consider a viatical settlement, and how you can take the next steps.

Why You Should Consider a Viatical Settlement

For the chronically or terminally ill, a viatical settlement can dramatically improve end-of-life quality—easing worry and providing great financial security to relieve unnecessary stress. Here are some of the main reasons why an increasing number of people are opting to pursue viatical settlements, and what it can mean for you if you choose to go down this path:

  • Forgo costly premiums. Premiums on life insurance policies are notoriously high —and growing. In many cases, increasing premium costs alone are enough to cause a policyowner to surrender their policy or allow it to lapse or expire. As such, a viatical settlement provides permanent relief from these premiums with an additional cash value incentive.
  • Generate real-time cash flow. Many chronically or terminally ill insureds require financial assistance in the later stages of illness. And for those without a serious illness but who are simply at an age where they need round-the-clock care, long-term medical expenses can be a heavy financial burden for even high-net worth individuals. In the current low-interest rate environment, there’s little opportunity to generate income from retirement savings. A viatical settlement offers real-time cash flow for eligible individuals, providing immediate financial assistance when it’s needed most.
  • Improve end-of-life quality. Increasingly, older adults, seniors, and those struggling with illnesses like terminal cancer are seeking a life insurance payout to make the most of the money they have while they’re still alive to enjoy it. A viatical settlement is an opportunity to gain an additional source of income, and can be put towards any end-of-life-enhancing experiences or purchases. There are no restrictions on what you can do with the settlement cash. This may be a particularly intriguing opportunity for policyholders whose beneficiaries are already financially stable, and do not need the death benefit they would otherwise receive.
  • Receive a return on a life investment. Amazingly, nearly 90% of universal life insurance policies never pay a death claim. Rather than lapsing an unwanted or unneeded policy, a viatical settlement can allow policyowners to receive more cash than they would otherwise receive. Receiving a return from a viatical settlement can bring a bit of financial peace and satisfaction to chronically or terminally ill policyowners who would otherwise receive less (or no) cash by surrendering or letting it lapse.

Of course, every case is different. For some, the benefits of a viatical settlement may not outweigh the risks, the solution may not fit their personal circumstances, or it may not align with their financial priorities. While this isn’t an exhaustive list, it does outline the major benefits and financial advantages to consider when evaluating whether a viatical settlement is right for you.

Why Viatical Settlements are Popular in Today’s Economy

Viatical settlements haven’t always been as common or accessible as they are now. But the conditions of our current economic environment have made them an increasingly attractive option for chronically or terminally ill policyowners. In today’s low-growth, near zero interest rate environment, profitable investment opportunities can be few and far between—especially for those who are older, incurring substantial medical expenses, or living primarily off of savings.

By monetizing your life insurance policy through a viatical settlement, you can get a cash return on the premiums you’ve been paying for years—opening up an additional source of income to meet immediate medical needs, ensure future financial comfort, or simply gain greater joy from the time you have left. Remember: there are no restrictions on where you might choose to spend your viatical settlement payout. Pay medical expenses. Buy a car. Pay for a grandchild’s education. Vacation somewhere you’ve always longed to go. It’s your money to use as you see fit.

Another major economic factor driving viatical settlements is the rising rates of medical care and medical expenses as seniors live longer than ever before. Healthcare expenses related to chronic or terminal illness can include insurance payments and premiums, long-term care facility expenses, repeat medical testing, treatments, therapies, and any necessary drugs, prescriptions, or medications. As someone incurring one or more of these costs yourself, you understand the financial burden firsthand. So as the costs of testing and treatments continue to rise—and the chronically ill continue to incur them for potentially years on end—financial relief from a viatical settlement can offer a final retainer on financial stability.

Viatical Settlement Pros

  • Viatical settlements provide lump-sum cash payments to terminally- or chronically-ill policyowners at a higher rate than life settlements, and typically 4X greater than the policy’s cash surrender value.
  • You’ll also be able to stop paying for your life insurance premiums, as the new owner of your policy will take over 100% of the premiums and maintenance costs.
  • With your new money, you’ll be able to better afford medical expenses or even use those funds to travel and improve your overall quality of life.
  • Viatical settlement payments are often tax-free for policyowners who are terminally- or chronically- ill.

Viatical Settlement Cons

  • It’s possible you might lose Medicaid eligibility. This is because Medicaid is need-based depending on your income and assets.
  • If you have outstanding debt in collections, it’s possible creditors may seize any funding from your viatical settlement.
  • Upon your death, your beneficiaries won’t receive anything – unless you choose to give them part of your viatical settlement payment or elect to keep a portion of your coverage through a Retained Death Benefit.

How to Get a Viatical Settlement

Once you decide that a viatical settlement is right for you, you can begin the process of obtaining one. Here are the broad steps of pursuing a viatical settlement through Coventry Direct:

  1. Policy evaluation. First, you’ll need to provide your policy and health information to assess eligibility for a viatical settlement. With this information, licensed providers can begin the screening and evaluation process.
  2. Submit authorizations. Fill out and submit all necessary documentation and authorizations, allowing the licensed provider to gather the insured’s medical records and life insurance policy information. These are essential steps in assessing your eligibility.
  3. Receive an offer. Once your eligibility is determined and the provider decides it would like to make an offer, you may receive a formal cash offer to purchase the policy. With this, you can choose whether to accept the viatical settlement offer in full—selling the entire policy for its maximum value—or, depending on your personal health and financial circumstances, come to a partial agreement that may involve retaining a portion of your death benefit while eliminating future premium payment obligations.

Timing will vary depending on how accessible your medical and policy records are, and how long the documentation exchange and review processes take. Additional time variations may depend on how quickly the vendor through which you purchased your life insurance transfers ownership if and when you’ve received—and decided to move forward with—your viatical settlement offer.

Viatical Settlement Eligibility

The first factor of eligibility for a viatical settlement is whether you are chronically or terminally ill. As we mentioned above, these are defined as the following:

  • Chronically ill. The insured no longer has the ability to perform two or more activities of daily living (ADL). ADLs include walking or ambulating, feeding, dressing and grooming, toileting, bathing, and transferring (being able to move from one body position or physical location to another, even if by accessing an assistive device). Chronically ill also includes those who require substantial supervision to ensure standard health and safety.
  • Terminally ill. The insured has a life expectancy of less than 24 months.

To see if you qualify for a viatical settlement, complete our online form, or call 1(800)-268-3687 to speak directly with a Coventry Direct policy specialist.

What Are Factors that Influence Viatical Settlement Payouts?

The biggest factor that influences your payout amount will be your policy’s value. The payout will always be less than the policy’s face value, but, as stated above, larger than the cash surrender value.

Another factor that influences payout is life expectancy. Statistical and medical information are both used to determine how much longer you have left to live. The shorter that period of time, the larger the payout.

Viatical Settlements vs. Life Settlements or Senior Settlements

Distinguishing viatical settlements from life settlements can be challenging. Below, we’ve outlined the major differences between the two—and how the eligibility and settlement processes may differ for policyholders pursuing each.

Viatical Settlements Life Settlements or Senior Settlements
Designed for those with chronic or terminal illness to sell life insurance Designed without health qualifications
Does not necessarily require policyowners to be senior citizens For senior citizens who are a minimum of 65 to 70 years old, or have a life expectancy of less than 20 years.
Does not require a specific type of life insurance policy Any type of policy may qualify, even term.
Are not usually subject to taxation* Certain portions are subject to taxation*


Are there Viatical Settlement Alternatives?

Yes! There are several viatical settlement alternatives. If you are not eligible or are curious about other options, read on to learn more about other ways you can obtain cash flow through your life insurance policy.

Accelerated Death Benefits

An accelerated death benefit (also known as an ADB) is when you add a rider to your insurance policy that enables the life insurance policyowner to access some of their death benefit prior to death. Any money paid while the policyholder lives is removed from the death benefit upon their passing.

Policy Loans

If you have a permanent life insurance policy with a notable cash value, consider borrowing against that value. Keep in mind that the various fees and interest that might be added to the original debt should you choose to make this decision. Any loans you are unable to pay prior to passing will be subtracted from your death benefit.

Life Settlement

If you’re struggling with the strict requirements of viatical settlements, consider a life settlement. As we mentioned above, you’ll need to be at least 65 years old and own a life insurance policy of $100,000 or more if you want to consider this process.

A life settlement enables you to cash in your life insurance policy, the same as you can with a viatical settlement.

While this doesn’t cover every difference between viatical and life settlements, it does speak to the central differences between the two. For more information on each, and whether or not you may qualify for one, contact Coventry Direct today.

*Coventry Direct does not offer tax or legal advice. This material has been prepared for informational purposes only and should not be relied upon for tax or legal advice. Coventry Direct urges you to consult with your own tax or legal advisors before entering into any transaction.

Editorial Disclaimer: Coventry Direct, a member of the Coventry group of companies, educates policyowners and insureds interested in learning about life settlements. Resources and publications are researched, written and updated by in-house experts to reflect the most up-to-date industry knowledge.

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