Viatical Settlement in Times of Need

Viatical Settlement
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.

When you sell your policy through a viatical settlement, your beneficiaries will not receive the life insurance policy payout upon your passing. Rather, the third party to whom you sold the policy becomes the owner and collects the full face value. You do, however, receive a lump sum that exceeds the cash value while you are still living and you can use that money however you see fit.

How Do Viatical Settlements Work?

When considering taking a living benefit instead of a death benefit, one option is to access the cash value buildup inside the policy. But when that amount isn’t enough, a better option can be something called a viatical settlement. A viatical settlement occurs when a policy owner who is terminally or chronically ill with a life expectancy of 24 months or less sells his/her life insurance policy to a third party. You might wonder why this is preferable to simply surrendering the policy. Typically, a policy is purchased for a much larger amount than the cash surrender value.

Uses for Viatical Settlement Money

Life insurance policies are often sold for a viatical settlement when money is needed to pay for medical expenses, changes to a home to accommodate a chronically ill patient or for personal uses, like a once-in-a-lifetime trip with loved ones.

Viatical Settlements and Taxes

Anyone considering a viatical settlement should consult a tax advisor. Generally, you are able to collect your viatical settlement with no income tax ramifications. Under the Health Insurance Portability and Accountability Act, viatical settlements are income tax free to the seller.

Other Information to Know and Features of a Viatical Settlement

There are viatical settlement requirements regarding the total value of your policy. In most cases, a policy must exceed $100K in face value to be eligible for a viatical settlement. Additionally, most states require that a policy must be owned for at least two years before a policyowner can sell it. Some states require ownership of a policy for five years. In regards to health status, the third party provider who is interested in buying will require signed forms that allow them to get access to health information on your behalf.

Make sure you understand the limits of this permission before you move forward. There may also be a minimum amount that the provider must pay for your viatical settlement. Some states regulate minimum payments for viatical settlements in order to protect the consumer.

For example, Viatical settlements can offer meaningful, timely solutions for terminally or chronically ill patients in need of additional funds. Talk to your family about how a viatical settlement might help you and your family get on a firmer financial foundation during a time of need. Sometimes a living benefit today can outweigh the death benefit that will be collected someday.

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