Settlement FAQs

what is a viatical settlement transaction

by Micah Braun Published 3 years ago Updated 2 years ago
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A viatical settlement refers to the financial transaction of a life insurance policy from a life insurance policyholder, the viator, to a third party, such as a viatical settlement provider.

A viatical settlement allows you to invest in another person's life insurance policy. With a viatical settlement, you purchase the policy (or part of it) at a price that is less than the death benefit of the policy. When the seller dies, you collect the death benefit.Aug 17, 2022

Full Answer

What is a viatical settlement?

A viatical settlement is an arrangement in which someone who is terminally or chronically ill sells their life insurance policy at a discount from its face value for ready cash. In exchange for the cash, the seller of the life insurance policy relinquishes the right to leave the policy's death benefit to a beneficiary of their choice.

What is a'viatical settlement'?

What is 'Viatical Settlement'. A viatical settlement is an arrangement in which someone with a terminal disease sells his or her life insurance policy at a discount from its face value for ready cash. The buyer cashes in the full amount of the policy when the original owner dies. A viatical settlement is also referred to as a life settlement.

Do I qualify for a life insurance viatical settlement?

Life insurance policyholders who are seriously or chronically ill, have a policy with a face value of a minimum of $100,000, and have held their policy for at least two years will typically qualify for a viatical settlement. How Much is Paid in a Viatical Settlement?

Are viatical settlements regulated in Michigan?

It is worth noting that both Michigan and New Mexico regulate viatical settlements but not standard life settlements. Some states combine guidelines from each of these models. One of the key elements of viatical settlement regulation is how long you have to own your policy before you can sell it.

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Who benefits from a viatical settlement?

Viatical settlements are for people who are terminally or chronically ill, no matter their age. Also, as noted, the proceeds from a viatical settlement typically aren't considered taxable income. Life settlements are generally only available only to women age 74 and older and to men age 70 and older.

How do Viaticals work?

In a viatical settlement, you buy either all or part of a life insurance policy from the policy's current owner. The buyer of a viatical settlement pays more than the cash surrender value of the policy (if any) but less than the final payout of the policy. They also pay all applicable premiums.

When can viatical settlements be issued?

You are usually eligible if you have 24 months or less to live and you added this option to your life insurance policy before you became terminally ill.

Who qualifies for a viatical settlement?

To be eligible for a viatical settlement, the policyholder must be terminally ill or chronically ill with a life expectancy of fewer than two years. Most types of policy types qualify for a viatical, including term life. The average payout of a life insurance sale is 4-6 times the policy's cash surrender value.

Are Viaticals good investments?

From an investment perspective, a viatical settlement can be extremely risky. The rate of return is unknown because it's impossible to know when someone will die. If you invest in a viatical settlement, you are speculating on death. Therefore, the longer the life expectancy, the cheaper the policy.

What is the risk to the purchaser in a viatical settlement transaction?

What is the risk to the purchaser in a viatical settlement transaction? The insured does not die within the time period anticipated. In ordinary whole life insurance what happens if the insured dies before 100? the policy pays face value.

Is a viatical settlement taxable?

Is A Viatical Settlement Taxable? Most of the time, viatical settlements are not taxable. Settlement proceeds for terminally ill insureds are considered an advance of the life insurance benefit. Life insurance benefits are tax-free, and so it follows that the viatical settlement wouldn't be taxed, either.

What is the primary feature of a viatical settlement?

So, What Is the Primary Feature of a Viatical Settlement? Essentially, it is the prepayment of a death benefit at a reduced rate. However, it is important to note that the cash settlement is provided in exchange for the sale and transfer of the ownership rights of the life insurance policy.

What is the difference between a life settlement and a viatical?

The two main categories of insurance policy sales are life settlements and viatical settlements. A life settlement differs from a viatical settlement because the insured in a life settlement is usually healthy, while a viatical settlement pertains to a sale by an insured with a terminal illness.

How do I invest in viatical settlements?

How do people invest in viatical settlements? Investment options for viatical settlements are more limited than they are for life settlements. Accredited investors can purchase a book of life insurance policies from brokers or from providers who receive cases from life insurance agents.

What is another name for the insured in a viatical settlement?

What is another name for the insured in a viatical settlement? The insured in a viatical settlement is also known as the viator.

What does the word viatical mean?

viatical. / (vaɪˈætɪkəl) / adjective. of or denoting a road or a journey. botany (of a plant) growing by the side of a road.

Which of the following is not true regarding regulations of viatical settlements?

All of the following are true regarding viatical settlements, EXCEPT: Select one: A terminally or chronically ill insured can sell their life insurance policy to a third party in exchange for payment of a large portion of the death benefit.

How long does it take to get a settlement offer?

The average settlement negotiation takes one to three months once all relevant variables are presented. However, some settlements can take much longer to resolve. By partnering with skilled legal counsel, you can speed up the negotiation process and secure compensation faster.

Who is a person other than a Viator that enters into a viatical settlement contract?

Viatical settlement provider means a person, other than a viator, that enters into or effectuates a viatical settlement contract.

Who negotiates viatical settlement contracts?

Viatical settlement broker(10) "Viatical settlement broker" or "broker" means a person that on behalf of a viator and for a fee, commission, or other valuable consideration offers or attempts to negotiate viatical settlement contracts between a viator and one or more viatical settlement providers.

What is a Viatical Settlement?

Viatical settlements allow someone diagnosed with a life-threatening illness to sell their life insurance policy for cash. This person is known as...

How Does a Viatical Settlement Work?

Once someone has decided to sell their life insurance policy, they usually reach out directly to a viatical settlement company or viatical settleme...

How Much Money Will I Get from a Viatical Settlement?

Typically, the rate you’ll receive is 50 to 70% of the policy’s value. For example, let’s say the viator, John, has a life insurance policy for $50...

How Much Money Will I Get from a Viatical Settlement?

Typically, the rate you’ll receive is 50 to 70% of the policy’s value. For example, let’s say the viator, John, has a life insurance policy for $50...

Viatical Settlements vs. Senior Life Settlements – How Are They Different?

On the surface, it seems like viatical settlements and senior life settlements are the same things, but they differ in a few crucial ways. Senior L...

Why Choose a Viatical Settlement?

The main reason why a person may choose to sell a viatical settlement is that the policyholder needs the money. This need could be for anything: a...

How Quickly Can I Get a Viatical Settlement?

Typical payout time with American Life Fund is within a few weeks.

Who Qualifies for a Viatical Settlement?

Any individual with a chronic or life-threatening illness and an existing life insurance policy qualifies for a viatical settlement. The policy can...

What is viatical settlement?

A viatical settlement is a type of life settlement that allows you to receive a substantial lump-sum payment for your life insurance policy while you’re still alive. Instead of keeping the policy (and your beneficiaries ultimately receiving the death benefit), you can sell it to get money for health care and other needs.

Why are viatical settlements limited?

Because of the risks involved, investments in viatical settlements are limited to accredited investors who satisfy specific income, asset, or other requirements defined under federal securities law.

How are life settlements similar to viatical settlements?

Life settlements are similar to viatical settlements because in both arrangements, you sell your policy for a lump sum, the buyer takes over the death benefit and premium payments, and you can use those funds during your lifetime. However, there are some crucial differences:

How to find out how much you can get from a viatical settlement?

To find out how much you can get from a viatical settlement, you need to apply for a settlement. Settlement companies evaluate your life insurance policy, your medical history, and other details to arrive at an offer amount.

Why shop around as you evaluate viatical settlements?

Shop around as you evaluate viatical settlements because each provider might offer different amounts.

What to do before committing to a settlement?

Before committing to a settlement, explore alternatives, including accelerated death benefit options with your existing insurance policy.

Is a viatical settlement a big decision?

Using a viatical settlement is a big decision, and it requires careful consideration.

What is a viatic settlement?

Viatical settlements allow someone diagnosed with a life-threatening illness to sell their life insurance policy for cash. This person is known as the “viator.”

Why Choose a Viatical Settlement?

The main reason why a person may choose to sell a viatical settlement is that the policyholder needs the money. This need could be for anything: a house, a car, a family emergency, or an investment opportunity.

How Quickly Can I Get a Viatical Settlement?

Typical payout time with American Life Fund is within a few weeks. Here’s how it works:

What is viatical life?

Per the National Association of Insurance Commissioners (NAIC), any individual with a chronic illness or terminal illness, defined as a condition that affects the activities of daily living, and an existing policy with an insurance company may qualify for a viatical life settlement.

How long does a viaticated policy last?

Generally speaking, the viaticated policy needs to have been in effect for a minimum of one year and have a valuation of at least $100,000. A viatical settlement purchaser may also have life expectancy requirements for each applicant, typically two to four years or less.

What do policyholders use viatical settlement funds for?

Some policyholders use the funds from their viatical settlement to seek further treatment or even experimental treatments.

How long do you have to live to get a life settlement?

Life settlements are typically given to those who are expected to live more than two to four years or whose diagnosis is debilitating but not terminal, and viatical settlements are given to those expected to live less than two to four years.

When can viatical settlements be transacted?

Viatical settlements are typically transacted when a person has been diagnosed as terminally ill and is expected to live 24 months or less or is certified as chronically ill. When the insured’s lifespan is longer than 24 months, they may not qualify for a tax-free viatical but can still pursue a regular life settlement.

What Does Viatical Settlement Mean in Insurance?

Viatical is derived from the Latin word “viaticum”, which means “provision for a journey”. This refers to the final words someone may receive before their passing.

How are viaticals taxed?

Most of the time, a viatical settlement is free from tax. One way to look at it is that the settlement proceeds are an advance of your life insurance benefit - and life insurance benefits are typically tax free. However, with all things tax, there can be exceptions. Many state tax laws regarding viatical settlements follow federal guidelines, but some may not. The most important thing to consider is consulting a tax professional for guidance with respect to tax obligations.

What is the difference between a life or viatical settlement and cash surrender value?

With a cash surrender, your insurance company will terminate your insurance policy and give you a cash sum equal to the surrender value. In this instance, since the policy is canceled, you no longer have to make payments on the premium or have access to the death benefit. On the other hand, with a life or viatical settlement, the new owner will take on the policy’s rights and obligations. In exchange for a cash payment, the new owner will continue to make premium payments and ultimately receive the death benefit.

What is life settlement?

You may have heard of a life settlement before, where a policyholder sells their life insurance policy to a third party for a cash lump sum. Life settlements have been around for more than a century and have become more popular in recent times, largely due to increased awareness, easier accessibility.

What factors are considered when determining eligibility for a viatical settlement?

These may include specific things such as the insured’s medical condition, including disease type and stage, and also insurance policy details such as amount of ongoing premiums and the total face value of your policy.

When do viaticals settle?

Most viatical settlements occur when the insured has a life expectancy of two years or less.

What is a Viatical Settlement?

A viatical settlement is a specific type of life settlement involving individuals suffering from a terminal illness. The transaction is usually made tax-free by the IRS, as long as the insured meets specific criteria stated by a medical professional.

When Is The Right Time To Pursue a Viatical Settlement?

For many individuals facing a terminal illness, a viatical sale can be a strong financial solution. You may be able to cover all or part of the costs involved in your medical care, including travel, stay, and your actual medical costs. Some of the most common reasons you may consider a viatical settlement include:

How Is This Option Different Than Normal Life Insurance Purchases?

The transaction can typically be tax-free, so long as the insured meets specific criteria stated by a medical professional.

How Many Different Options Are There?

The Retained Benefit option means you would no longer pay any premiums and retain a portion of your benefit.

How long does a person have to live to get a viatical settlement?

To be eligible for a viatical settlement, the policyholder must be terminally ill or chronically ill with a life expectancy of fewer than two years.

What is cash surrender value?

Cash Surrender Value – The amount of money a policyholder receives if they cancel a policy. The total amount received is the policy’s cash value minus fees associated with policy cancellation. Death Benefit – The money a beneficiary (or beneficiaries) receives upon the death of the person insured on the policy.

What is Abacus Life Settlements?

Abacus Life Settlements is a licensed life settlement company that takes a client-first approach.

What is viatical settlement?

A viatical settlement allows you to invest in another person's life insurance policy. With a viatical settlement, you purchase the policy (or part of it) at a price that is less than the death benefit of the policy. When the seller dies, you collect the death benefit. Your return depends upon the seller's life expectancy and ...

Who licenses viatical settlements?

Many state insurance commissioners license the companies that buy viatical settlement to sell to investors and may have information about a specific company or viatical settlements in general. To find out who your state insurance regulator is, please visit the website of the National Association of Insurance Commissioners. The Federal Trade Commission also has information for those who are considering selling their life insurance policies.

What is a viatical settlement?

Viatical settlements or a viatical settlement contract is when terminal or chronically ill individual sells their life insurance policy to a viatical settlement broker. The policy seller receives a lump sum cash payout that is more than the cash surrender value, but less than the death benefit.

What are the two types of viatical settlements?

Types of Viatical Settlements. There are essentially two types of viatical settlements: one for the terminally ill and one for the chronically ill. Terminally ill is defined as having a life expectancy of fewer than 24 months.

How long do you have to own a viatical settlement policy?

In most states, the waiting period is two years (see the specifics for your state in the map below).

What is the NAIC viatic settlement model?

The NAIC Viatical Settlement Model suggests minimum payouts depending on the life expectancy of the policyholder.

Why do people settle viatically?

People opt for a viatical settlement for many reasons. Most often it is because they need money to cover medical or end-of-life expenses.

Which states regulate viatical settlements?

It is worth noting that both Michigan and New Mexico regulate viatical settlements but not standard life settlements.

What disclosures do settlement providers have to provide?

Settlement providers must provide substantial disclosure, including the disclosure of compensation paid to brokers.

What is a viatic settlement?

Viatical settlements involve an ill person selling his or her life insurance policy to an investor in return for a lump-sum payment. The investor takes over payments on the policy and is the beneficiary of the policy upon the death of the patient.

Why are settlements risky?

The settlements may be risky for the buyer because the insured person's life expectancy can change. The main risk for the seller (insured person) is that you will not get enough money for your policy, which is why you need to comparison shop. If you are interested in viaticating - selling your policy - look around.

What is the risk of selling insurance?

The main risk for the seller (insured person) is that you will not get enough money for your policy, which is why you need to comparison shop. If you are interested in viaticating - selling your policy - look around. There are plenty of brokers and viatical investors out there and the prices they will offer vary considerably. Don't be taken for a chump with a low-ball offer.

Is a viatical settlement a reverse mortgage?

They are not disreputable in any way, and are somewhat like reverse mortgages. They are not risky for the seller once the deal is done. The seller has cash in hand.

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Understanding A Viatical Settlement

  • Viatical settlements enable owners of life insurance policies to sell their policies to investors. Investors buy the full policy or a portion of it at a cost that is less than the policy's death benefit. The investor's rate of returndepends upon when the seller dies. The rate of return will be lower if …
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Criticism of Viatical Settlements

  • From an investment perspective, a viatical settlement can be extremely risky. The rate of return is unknown because it's impossible to know when someone will die. If you invest in a viatical settlement, you are speculating on death. Therefore, the longer the life expectancy, the cheaper the policy. However, because of the time value of money(TVM), the longer the person lives, the l…
See more on investopedia.com

Viatical Settlement vs. Life Settlement

  • Individuals not facing a health crisis may also choose to sell their life insurance policies to get cash, which is more typically referred to as a life settlement. A life settlement differs from a viatical settlement in that the insured has a longer life expectancy. In a viatical settlement, the life expectancy of the insured is generally two years or less. If a life insurance policyholder is consid…
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Special Considerations

  • There are various points to consider before deciding on either a viatical settlement or a life settlement: 1. It's important to get quotes from several companies to ensure a competitive offer. 2. Request an in-force illustration or reprojection for your current policy. 3. Not all proceeds received from the sale of a life insurance policy may be tax-free; make sure you understand all ta…
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Definition of A Viatical Settlement

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A viatical settlement is an arrangement in which you sell a life insurance policy to a settlement company before the insured person dies. The settlement company takes ownership of the policy and eventually receives the death benefit. A viatical settlement is one way to access a significant portion of your policy’s value prior t…
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How Viatical Settlements Work

  • Life insurance is a powerful tool for protecting loved ones. But in some situations, it’s better to receive the funds before the insured person dies. For example, your spouse and children might be financially secure, not need the death benefit, and prefer that you have plenty of money available for medical treatments, comfortable facilities, or a final family vacation everyone can enjoy toget…
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Viatical Settlement Regulations

  • Most states regulate viatical settlements, and the rules vary from state to state. Check with your state’s insurance division to verify that any settlement company you’re evaluating is authorized to conduct business in your area. Laws often require settlement providers to disclose important information about your transaction as well as alternatives to using a viatical settlement—but it’s …
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Viatical Settlements vs. Life Settlements

  • Life settlements are similar to viatical settlements because in both arrangements, you sell your policy for a lump sum, the buyer takes over the death benefit and premium payments, and you can use those funds during your lifetime. However, there are some crucial differences:
See more on thebalance.com

Criticisms of Viatical Settlements

  • Pitfalls for Investors
    Investors considering viatical settlements should be aware of several potential pitfalls. There’s no way to predict if or when your investment will pay off, making insurance policies difficult to value. If somebody lives longer than anticipated, you won’t receive payment when you expect it. As a re…
  • Pitfalls for Policy Owners
    There are a few items to be aware of if you’re considering a viatical settlement: 1. The primary drawback for policy owners is that your beneficiaries will not receive a death benefit after you sell the policy. 2. You could lose access to need-based benefits like Medicare if you no longer qualif…
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Alternatives to Viatical Settlements

  • There are other ways to access the cash value in your policy that may be more advantageous than selling it through a viatical settlement.
See more on thebalance.com

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