Viatical Settlement Companies

Viatical settlement companies purchase life insurance policies from terminally ill individuals for a prompt lump sum. These companies are third-party buyers that must follow state-specific regulations. They typically offer policyholders a lump sum that’s less than the full value but more than the surrender value.

Christian Simmons, writer and researcher for RetireGuide
  • Written by
    Christian Simmons

    Christian Simmons

    Financial Writer

    Christian Simmons is a writer for RetireGuide and a member of the Association for Financial Counseling & Planning Education (AFCPE®). He covers Medicare and important retirement topics. Christian is a former winner of a Florida Society of News Editors journalism contest and has written professionally since 2016.

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    Lamia Chowdhury
    Lamia Chowdhury, editor for RetireGuide.com

    Lamia Chowdhury

    Financial Editor

    Lamia Chowdhury is a financial content editor for RetireGuide and has over three years of marketing experience in the finance industry. She has written copy for both digital and print pieces ranging from blogs, radio scripts and search ads to billboards, brochures, mailers and more.

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  • Reviewed By
    Ebony J. Howard, CPA
    Ebony J. Howard, CPA

    Ebony J. Howard, CPA

    Credentialed Tax Expert at Intuit

    Ebony J. Howard is a certified public accountant and freelance consultant with a background in accounting, personal finance, and income tax planning and preparation.  She specializes in analyzing financial information in the health care, banking and real estate sectors.

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  • Published: November 18, 2022
  • Updated: November 22, 2022
  • 6 min read time
  • This page features 3 Cited Research Articles
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How to Cite RetireGuide.com's Article

APA Simmons, C. (2022, November 22). Viatical Settlement Companies. RetireGuide.com. Retrieved December 7, 2022, from https://www.retireguide.com/life-insurance/viatical-settlement/companies/

MLA Simmons, Christian. "Viatical Settlement Companies." RetireGuide.com, 22 Nov 2022, https://www.retireguide.com/life-insurance/viatical-settlement/companies/.

Chicago Simmons, Christian. "Viatical Settlement Companies." RetireGuide.com. Last modified November 22, 2022. https://www.retireguide.com/life-insurance/viatical-settlement/companies/.

Key Takeaways
  • Viatical settlement companies buy life insurance from terminally ill policy holders at a discount in exchange for a lump-sum payment the seller can use while still alive.
  • Viatical settlement companies and brokers should be licensed by the state in which you live.
  • A viatical settlement is a major decision with personal and financial implications, so it’s important to diligently examine all the ramifications.

What Is a Viatical Life Settlement Company?

Viatical life settlement companies are investment companies that buy life insurance policies from terminally ill patients for a percentage of the full value. This transaction is called a viatical settlement.

While life insurance provides financial protection for your loved ones when you die, some terminally ill individuals might need access to the money while still alive. If you accept a viatical settlement, you get an immediate lump sum payment to use however you choose. The company pays any continuing premiums and receives the full amount of the death benefit.

Most states have legislation in place that covers viatical settlements. The National Association of Insurance Commissioners (NAIC) drafted a Viatical Settlements Model Act in 2001 and have amended it several times since.

According to the Life Insurance Settlement Association (LISA), different states require viators to own their policy for anywhere from two to five years before being able to sell them.

How Viatical Life Settlement Companies Work

Viatical settlements are similar to life settlements in that you sell your life insurance policy to a third party at a discount in exchange for an immediate payment. However, in a viatical settlement, the seller — also known as the viator — is terminally ill. Viatical settlement taxes also differ from those of a life settlement.

If you decide to sell your life insurance policy, a licensed viatical settlement company or broker will collect detailed health and policy information from you during the application process. When all the information has been verified, you will receive a buyout offer. If you accept, the buyer will pay the agreed-upon amount within a short period, take over the payments of any premiums and collect the full death benefit.

Viatical settlement companies became prevalent during the AIDS crisis of the 1980s. The practice gave many people immediate access to money they needed to pursue treatment. Companies usually buy policies for less than their ultimate value but more than their surrender value. Above all, you get access to that money immediately and can use it however you choose.

Viatical Settlement Taxation

Choosing the Best Viatical Life Settlement Company

Choosing a viatical settlement is a major financial decision, so consider consulting with a trusted financial advisor and your beneficiaries first. Below are some other things to consider before determining the best viatical life settlement company for you.

The offer amount
Viatical settlement companies usually buy policies for somewhere between 50 to 70% of their face value. The exact amount of your payout will depend on several factors, including the ultimate value of the policy, your health and life expectancy and any remaining premiums or expenses.
Speed of completion
People choose viatical settlements because they need or want access to their money while they are still alive. Since terminal illness is in play, the process needs to be completed quickly.
Fees and costs
Many viatical companies do not charge upfront fees, but you should fully understand all the financial ramifications of your settlement, including who gets paid and how.
State specific regulations
There are variations in state regulatory requirements when it comes to viatical settlements. For instance, according to the Life Insurance Settlement Association (LISA), different states require viators to own their policy for anywhere from two to five years before being able to sell them.

State governments usually offer directories of approved viatical settlement companies working within your state’s boundaries. Some of the major names are listed below.

Viatical Settlement Companies
  • Abacus Life Settlements
  • American Fund Life
  • Coventry
  • Harbor Life Settlements
  • Magna Life Settlements
  • Ovid Life Settlements
  • Windsor Life Settlements
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Viatical Settlement Companies vs. Brokers

When pursuing a viatical settlement, you’ll want to work with a licensed viatical settlement broker or viatical settlement company. Though the two often work in tandem, and both are licensed under state laws, they are not precisely the same thing.

A viatical settlement company is an organization that buys life insurance policies from sellers and makes its profit from the death benefit.

A broker is an organization or individual that acts as an intermediary between viators and settlement companies. Brokers are paid by fee and/or commission.

Viatical Settlement CompanyViatical Settlement Broker
Pros
  • Established and secure
  • Experienced in the process
  • Able to make payments quickly
  • Liaises with multiple settlement companies
  • Independent intermediary
  • Works to get the best deal for the seller
  • Limited by internal company rules and regulations
  • Can only provide one type of offer
  • Fees/commission can add cost and/or reduce payout
  • Can add extra time to the process

Alternatives To Selling Your Viatical Settlement

A viatical settlement is a sensitive and personal decision, one that is not necessarily appropriate for every person or situation. Before opting for a viatical settlement, you’ll want to discuss all the ramifications with a trusted financial or legal advisor, as well as family and your original beneficiaries.

If you do not want or are not eligible for a viatical settlement, there are other alternatives to discuss with your insurance broker or provider.

Viatical Settlement Alternatives
Life settlements
A life settlement is a transaction similar to a viatical settlement, but the seller is not under a terminal diagnosis. You can opt for a life settlement if you are over 65 and not chronically or terminally ill.
Accelerated death benefits
Also known as living benefits or terminal illness riders, accelerated death benefits are clauses that are part of or added to your insurance policy that will give you access to some or all your policy’s proceeds while you are still alive, should you be terminally or chronically ill.
Cash surrender
If you have a permanent life insurance policy, it accrues cash value over time. If you terminate your policy before it matures, your insurance provider must pay you some or all that amount. It will be less than the face value of your policy, but it will be available to you quickly.
Loan
If your policy is in good standing, you may be able to take out a loan from your insurance company using your policy as collateral.

Whatever you choose, be sure you understand any tax implications before determining whether it’s right for you.

Last Modified: November 22, 2022

3 Cited Research Articles

  1. National Association of Insurance Commissioners (NAIC). (n.d.). Project History - 2013: Viatical Settlements Model Regulation. Retrieved from http://content.naic.org/sites/default/files/model-laws-project-history-698.pdf
  2. Life Insurance Settlement Association. (n.d.). Life Settlement Regulation – Map of Regulatory Law. Retrieved from https://www.lisa.org/regulations-overview/
  3. U.S. Securities and Exchange Commission. (n.d.). Life Settlements. Retrieved from http://investor.gov/introduction-investing/general-resources/news-alerts/alerts-bulletins/life