What is a Viatical Settlement?

A viatical settlement is a financial arrangement that provides individuals with a means to access funds from their life insurance policy before their death. The primary feature of a viatical settlement is the sale of a life insurance policy to a third party, usually a specialized investment firm, in exchange for a lump sum payment. This arrangement can offer significant benefits to policyholders, particularly those facing terminal or chronic illnesses, by enabling them to convert their life insurance benefits into immediate cash. However, there are pros and cons to consider. Please read on…

Understanding Viatical Settlements

To fully grasp the primary feature of a viatical settlement, it’s essential to understand the mechanics of this financial tool. Typically, an individual who holds a life insurance policy that does not include “Lifetime Benefits” decides to sell the policy due to an urgent financial need, often related to medical expenses or other critical financial pressures. The process involves a few key steps:

1. Assessment of Policy Value: The individual, also known as the policyholder, contacts a viatical settlement provider who evaluates the value of the life insurance policy. This evaluation considers factors such as the policy’s face value, the insured person’s life expectancy, and the terms of the policy.

2. Offer and Acceptance: Based on the evaluation, the provider makes an offer to purchase the policy. If the policyholder accepts the offer, the provider buys the policy and becomes the new beneficiary. The policyholder receives a lump sum payment, which is generally less than the policy’s face value but more than the cash surrender value.

3. Ongoing Premium Payments: After the settlement, the provider assumes responsibility for paying the policy premiums. In return, the provider will receive the death benefit when the insured person passes away.

4. Payout: Upon the death of the insured, the settlement provider collects the death benefit from the insurance company, which can be a substantial amount, depending on the policy’s face value.

Pros & Cons: Some Benefits and Considerations

The primary feature of a viatical settlement is the sale of the insurance policy for immediate cash, which provides several potential advantages:

-Immediate Cash Access: For policyholders facing terminal illness or severe financial need, a viatical settlement offers a quick way to access substantial funds. This can alleviate the stress of paying for expensive medical treatments, covering living expenses, or fulfilling other financial obligations.

– Relief from Premium Payments: By selling the policy, the policyholder no longer needs to worry about making ongoing premium payments, which can be a relief, especially for those on a fixed income or dealing with mounting medical costs.

– Use of Funds: The lump sum received can be used at the policyholder’s discretion. This flexibility allows individuals to address their specific financial needs, whether they involve medical care, debt reduction, or improving quality of life.

However, there are also some considerations and potential downsides to be aware of:

– Reduced Death Benefit for Beneficiaries: Since the policy is sold to a third party, the original beneficiaries will not receive the full death benefit upon the insured’s death. Instead, the buyer of the policy receives the payout, which can impact the financial planning of the policyholder’s family or loved ones.

– Potential Impact on Eligibility for Assistance: In some cases, receiving a lump sum from a viatical settlement may affect eligibility for government assistance programs, such as Medicaid. It is important for individuals to consider these implications and consult with financial advisors or legal professionals before proceeding.

– Tax Implications: The proceeds from a viatical settlement can have tax implications. While some states and federal regulations might exempt the settlement amount from income tax, it is crucial to understand the tax consequences and seek guidance from tax professionals.

The Primary Feature of a Viatical Settlement:

In summary, the primary feature of a viatical settlement is the conversion of a life insurance policy into immediate cash by selling it to a third party. This financial arrangement provides policyholders, especially those with terminal or chronic illnesses, with a valuable opportunity to access funds that can significantly impact their quality of life and financial stability. While the immediate benefits can be substantial, it is essential for individuals to weigh these advantages against potential drawbacks, such as reduced death benefits for beneficiaries and possible tax implications. As with any significant financial decision, careful consideration and professional advice are key to making an informed choice.

Life Insurance for the Living:

Living Benefit Riders:

For those who may want to address the possibility of future cash needs for either emergency cash or long-term care, you may look into purchasing policies that do allow for Living Benefits – using Life Insurance while you’re still alive!

Many insurance carriers offer life insurance policies with living benefits or long-term care riders. These riders can provide financial assistance if the insured needs long-term care or faces critical, chronic, or terminal illnesses. Here are some notable carriers known for offering such policies:

1. Nationwide
– Policy: Nationwide Life Insurance Policies
– Riders: Nationwide offers various riders, including long-term care riders and critical illness riders, on their life insurance policies.

2. MetLife
– Policy: MetLife’s Universal Life Insurance
– Riders: MetLife provides options for accelerated death benefits, critical illness riders, and long-term care riders.

3. Prudential
– Policy: Prudential’s Permanent Life Insurance
– Riders: Prudential offers several riders including accelerated death benefits and long-term care riders.

4. John Hancock
– Policy: John Hancock Life Insurance Policies
– Riders: Known for their Vitality Program, John Hancock also provides options for long-term care riders and accelerated death benefit riders.

5. Lincoln Financial
– Policy: Lincoln LifeSpan and Lincoln WealthAdvantage
– Riders: Lincoln Financial offers a range of living benefits including critical illness riders and long-term care riders.

6. MassMutual
– Policy: MassMutual Whole Life and Universal Life Policies
– Riders: MassMutual offers riders for long-term care and chronic illness benefits.

7. Transamerica
– Policy: Transamerica Life Insurance
– Riders: Transamerica includes options for accelerated death benefits and long-term care riders in many of their policies.

8. State Farm
– Policy: State Farm Life Insurance Policies
– Riders: State Farm provides options for living benefits riders and long-term care riders.

9. AIG (American International Group)
– Policy: AIG Life Insurance
– Riders: AIG offers various riders including critical illness and long-term care riders.

10. New York Life
– Policy: New York Life Permanent Life Insurance
– Riders: New York Life provides options for accelerated death benefits and long-term care riders.

These carriers offer a variety of policies and riders, so it’s important to compare the specifics of each to find the one that best meets your needs. Additionally, the availability of these riders can vary based on the policy type, state regulations, and individual underwriting requirements. Always consult with a financial advisor or insurance professional to ensure you choose the right policy and rider for your specific circumstances.

If you’d like a free quote, please contact me via the “contact me” page. I will be happy to work with you!

God Bless,

Toni