Nothing can throw your life into turmoil like a cancer diagnosis or a diagnosis of another terminal illness. Not only is your life upside-down, but your finances may now also be in danger. Many people may be unsure of what a viatical settlement is or how it works. A viatical settlement can help to provide financial peace of mind for you and your family members should you be facing difficulties due to a terminal or life-threatening illness.
These types of settlements provide for the sale of a life insurance policy and can help create an improved financial situation for people facing hardships. If you’re struggling to pay for medical care or medical bills and can’t afford to pay insurance premiums, selling your life insurance policy could free you of your debt or financial obligations to insurance companies.
What is a viatical settlement?
A viatical settlement is a financial transaction of a life insurance policy from a policyholder to a third party, such as a viatical settlement provider. Licensed brokers who work with providers can aid such transactions and negotiate settlement contracts. Policyholders can also work directly with viatical settlement providers and life insurance companies without the service of a settlement broker.
The principle behind viatical settlements is that insured policyholders can sell their insurance policies for a cash payout. This payout will be less than the policy’s death benefit, but more than the cash surrender value of the policy. The cash surrender value is the money that an insurance provider will pay a policy owner if they choose to end their policy early or prior to an insured event happens.
Viatical settlements provide a policyholder a lump sum of cash to provide immediate help. The purchaser of the policy becomes the new life insurance policyholder and pays future premiums. Upon the death of the original policyholder, the purchaser will collect the death benefit as the sole beneficiary. The settlement payment is an advance of your death benefit, and it may be treated as such by the IRS, meaning, the payment may not be considered taxable income.
Of course, this type of financial plan is highly useful for caregiver pay, medical treatments, and other medical expenses.
Who qualifies for a viatical settlement?
The National Association of Insurance Commissioners, says that an individual with a chronic illness, defined as a condition that affects daily living, and an existing policy with an insurance company may qualify for a viatical life settlement. Typically, in order to qualify for a viatical settlement, you must have a diagnosis of a terminal illness. Under HIPAA, someone who is terminally ill is someone with a life expectancy of fewer than 24 months. If you have a life expectancy of greater than 24 months, you can look into the option of receiving a life settlement.
Unfortunately, as harsh as it may seem, the shorter your life expectancy is the more value you may have in your life insurance policy. Any whole, term, universal, or group life insurance policy is acceptable to sell as part of a viatical settlement. Any person interested in a settlement in exchange for their policy should shop around for viatical companies, like the American Life Fund (americanlifefund.com), and consider all of the options available
Each life settlement opportunity will consider several factors about a person’s situation such as the type of disease they have, the stage that the disease is in, their policy’s face value, the number of insurance premiums due, and other relevant information and available financial options. The provider will use these factors in a formula to determine the amount that will be offered to the patient in a viatical settlement contract. A settlement provider will let you know what kind of figure to expect.
Being diagnosed with a terminal illness is devastating and can create a difficult time for patients and their families. A viatical settlement could help provide some financial freedom and give a little relief during an already stressful time.