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.
- Written by Christian Simmons
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.Read More
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- Reviewed ByEbony 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.Read More
- Published: November 18, 2022
- Updated: November 22, 2022
- 6 min read time
- This page features 3 Cited Research Articles
- Edited By
- 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.
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.
- Abacus Life Settlements
- American Fund Life
- Harbor Life Settlements
- Magna Life Settlements
- Ovid Life Settlements
- Windsor Life Settlements
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 Company||Viatical Settlement Broker|
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.
- 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.
- 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.
3 Cited Research Articles
- 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
- Life Insurance Settlement Association. (n.d.). Life Settlement Regulation – Map of Regulatory Law. Retrieved from https://www.lisa.org/regulations-overview/
- U.S. Securities and Exchange Commission. (n.d.). Life Settlements. Retrieved from http://investor.gov/introduction-investing/general-resources/news-alerts/alerts-bulletins/life