Not only can terminal illnesses cause death, but they can also affect financial stability and the well-being of families. However, a viatical settlement can offer financial support and emotional comfort for those suffering from serous diseases.
Viatical settlements are simply the transfer of life insurance benefits to another party. Viatical settlements are also known as “viaticals” and allow people who have suffered a terminal illness to take advantage of the current value of their life insurance policy in order to lessen their financial burdens.
Viatical settlements were established in 1980 to allow terminally ill AIDS patients to have early access to their life insurance benefits. Viatical settlements have seen a significant increase in popularity. Policy holders with Lou Gehrig1s, heart disease, and other life-threatening diseases can now use viatical settlements.
Viatical Settlements: How Important Are They?
For those who are suffering from terminal illness, viatical settlements may be a viable source of funding. About 40 million Americans don’t have health insurance and are often unable earn a living due to their illness. These people must pay for their medical expenses out of pocket, in addition to daily living expenses like food, shelter, utilities, and transportation. These people can receive viatical settlements to help them maintain financial security in their last months and years.
Viatical settlements can be described as legal transactions that are based on the following concept: For a portion of the face value, investors buy life insurance benefits from insurees. They then receive the entire death benefit of the policy upon the person’s death. Viatic settlements are a way for terminally ill persons to receive a portion of their policies while they’re still alive. These funds can be used to pay for their healthcare, daily living expenses, and even to enjoy a well-deserved vacation with loved ones. The bottom line: Viatical settlements allow individuals to benefit from their life insurance benefits before dying and improve the quality of their remaining life.
How Viatical Settlements work
Viatical settlements can be quite common. Here’s how they work. The policy owner sells it for a portion of the death benefit. The policy’s face price is usually 60-70 percent, so the discounted price received is often between 60-70 percent.
Viatical settlement buyers become the new policy owner/beneficiary of the life insurance policy. They are responsible for all future premiums. The buyer also receives the death benefit of an insurance policy in the event that the insured passes away.
Viatical agreements are generally approved based on the nature and severity of the condition. Also, a doctor will review the medical records of the insured. The viatical settlement transaction is usually facilitated by a trusted broker or insurance agent, without the buyer ever meeting with the person who is ill.
Guidelines for the Sale of Viatical Settlements
Viitical settlements can be used to sell almost any type of life insurance, provided that the policy does not prohibit ownership transfer rights. Most policies will accept universal, whole, term, or group life insurance policies.
Many policies have a “contestability” clause that allows insurance companies to cancel a policy if they discover that the policy holder has a preexisting condition. Most settlement companies won’t buy policies older than two years.
Two types of companies typically purchase viatical settlements. The first buys life insurance policies directly through ill patients using private funds or proceeds from company stock sales. These companies own all rights to the insurance policy, and they act as the beneficiary. These transactions are not considered “brokered” because the viatical settlement provider buys the policies directly.
This second type of viatical settlement firm acts as a broker, or intermediary. It is the category in which most settlement firms fall. They connect potential buyers to life insurance policies that are available for purchase. The viatical settlement company is not the owner of the policy. It is instead entitled to a portion of the purchase price or death benefit, usually 4 to 6 percent, as compensation for its services.
Each settlement company has its own rules and limitations regarding the purchase of viaticals. Individuals receive a death benefit percentage when they sell their policies. This is determined largely by their life expectancy. A person can expect to receive more insurance benefits if they have a shorter life expectancy.
A policy may be worth more than 90% if an individual has less than eight months to live. A person who is expected to live for at least two years may be eligible for 50 percent of the death benefit.
State Regulations
Viatical settlement payments, regardless of the amount received from an insurance policy, are generally exempted from tax. To be eligible for tax-favored treatment, an individual must be terminally ill, live in a state that allows viatical settlements, and have a valid insurance policy. If the policy is purchased by a company that meets the National Association of Insurance Commissioners’ viatical settlement guidelines, residents from other states could be eligible for a tax benefit.
Viatical sales have their limitations, depending on where they are being sold. Anyone considering a viatical settlement needs to consult a qualified tax and legal professional.
Another piece of advice is to look into the options available through their life insurance companies before finalizing a viatical agreement. Companies are allowing policyholders to borrow against their policies more frequently. Some policies also offer cash value that is separate from the death benefit or accelerated death benefits, which can allow policy holders to access cash. Viitical settlements are an option for those who are terminally ill and their families if other options are not possible.
