Am I eligible for a viatical settlement?
You may be eligible for a viatical settlement if you have an in-force life insurance policy that you’re willing to sell in exchange for a one-time payment. There are companies that specialize in buying life insurance policies from individuals who longer need or want their policies. In such an arrangement, the viatical company becomes the owner and beneficiary of the policy, and the buyer becomes responsible for premium payments. After the sale of the policy, the original owner no longer has any obligations or claims relating to the policy. Once the insured person dies, the viatical company collects the death benefit.
Does a viatical settlement make sense?
A viatical settlement does not make sense for everyone, but for individuals in certain situations, it could provide a much-needed infusion of cash to help with medical or other expenses. If you have a life insurance policy that you’re sure your beneficiaries will not need to rely on, and you are in need of a lump sum of money, a viatical settlement might be suitable. It’s important to understand that the amount you receive in exchange for your life insurance policy can be significantly less than the policy’s death benefit. You’ll also want to discuss any potential tax implications with your tax advisor.
How is my payout determined?
Under a viatical settlement, your payout is determined by the amount of the policy’s death benefit and your expected lifespan. Generally, the longer you are expected to live, the lower your payout will be. This is because the viatical company will have a longer period during which they will make premium payments on the policy – reducing their profitability. You may be required to have a medical examination in order for the viatical company to estimate your expected lifespan.
Choosing an Accelerated Death Benefit or a Viatical Settlement
Some life insurance policies have an accelerated death benefit, which allows the insured person to receive part of the policy’s death benefit while they are still living. Eligibility is usually reserved for situations where the insured person is suffering from a terminal illness. If you’re in this situation, an accelerated death benefit may be optimal, because you are able to retain ownership of the policy while receiving financial assistance. If your policy does not have an accelerated death benefit, or if it does include one and you’re not eligible to activate it, a viatical settlement may be a better option.
Want to learn more about Viatical Settlements? Contact Magna Life Settlements today!
Considering a Viatical Settlement in Times of Need
We do our best to make sure our loved ones are cared for after we’re gone, and life insurance policies offer us one way to do that. But coming face to face with a terminal diagnosis can shift the tides and make a living benefit a better option than your loved ones collecting a death benefit.
Who Qualifies For A Viatical Settlement?
Viatical settlements are usually in reference to the sale of someone’s life insurance policy who has been diagnosed as terminally ill, with a life expectancy of 24 months or less. The person who is sick will sell their policy to a viatical settlement provider that is specifically licensed to do the transaction. The provider is usually executing the transaction on behalf an investor funding the viatical settlement. They will offer a lump-sum cash payment equivalent to a percentage of the face value of the life insurance policy. Some states have regulations regarding minimum settlement amounts, which can be as high as 80% of the face value of the policy for terminally ill “viators.” The main reason that people in this type of situation sell their insurance policies is because they need to use their money before they pass away instead of leaving it to a beneficiary. Some specific reasons many people do this is to pay for medical care, living expenses or to make memories before dying.
Another type of similar transaction is a life settlement. This transaction is virtually the same, only the “settlor” or seller of the policy has a greater than 24 month life expectancy. Settlement amounts are often 6-8 times higher than the cash surrender value that a carrier is willing to give. In many cases, people no longer needing or who are unable to afford their policies just stop paying on them, causing them to lapse into worthlessness. Life and viatical settlements enable the policy owner to realize value where they might have previously thought none existed, thereby improving their financial condition while they live.
Who Is Able To Buy Life Insurance Policies?
As stated earlier, policies are typically bought by viatical and life settlement providers. They are able to buy policies using funds provided by investors or loans from other financial institutions. According to the Internal Revenue Code, a provider of a viatical or life settlement is a person or business that regularly buys or takes ownership of contracts of life insurance policies. The purchaser will make a profit by getting the full face value of your policy once you pass away, even though they only paid you a portion of it. This is because they have to keep the policy in force by paying the premiums until it matures. It is important to note that once you sell your policy, your beneficiaries will no longer get a payout once you pass away. Most reputable viatical or life settlement providers require beneficiaries to acknowledge the settlement before any money is paid to the seller of the policy.
How Much Is My Life Insurance Policy Worth?
The amount you will actually receive is going to depend on a number of factors including how much your policy is worth, how much the company will spend on your insurance premiums, and your projected life expectancy. Typically, the longer you have left to live, the less you will be given for your policy.
How To Pick A Viatical or Life Settlement Company To Sell To?
Viatical and life settlement companies or individual providers need to be licensed or registered with a state’s department of insurance. Only 7 states in the U.S. are not regulated. However, settlements can still be effected in those states, and most providers use best practices where no regulations exist.
Before selling your policy to a provider, be sure they are licensed or registered, where applicable, to legally buy your life insurance policy in your state as well as what the state’s requirements may be. This is important for many reasons, not the least of which is because it may play a big role in whether or how the sale of your life insurance policy is treated for tax purposes. In addition, you need to be certain if there are any other fees involved with the sale after you sell it. Always consult a professional when considering the sale of your policy.
Should You Consider Selling Your Life Insurance Policy?
Selling your policy is a personal decision and there is no single correct answer. Below are some important factors to consider first:
•Are their any tax penalties for selling the policy?
•Are your beneficiaries aware of your need to sell your policy?
•Are there other ways to get the money you need for living expenses until you pass?
• Does your policy include a living benefit rider or an accelerated death benefit rider?
Income Tax Penalty Considerations
In a lot of cases, if you are terminally ill and have less than two years to live, you can sell your life insurance policy without any tax penalties. In other cases, if you have been diagnosed as chronically ill and not terminally ill, the funds you receive may only be tax free if you use them to pay for qualified long-term care services.
Again, always consult a professional if you have a policy you do not need or cannot afford, and you wish to realize its true value while you live.