What is a Viatical Settlement?
A viatical settlement occurs when a life insurance policyholder sells that policy to a third party – typically a viatical settlement broker or viatical settlement company – in return for an immediate lump sum of cash.
The funds that are received by the policyholder are generally much more than what they can obtain by simply cashing out or surrendering the policy through the issuing insurance company. This is because the funds that are offered by the viatical settlement companies are a percentage of the policy’s death benefit, which on average, can be up to four times more than the policy’s cash surrender value.
How a Viatical Life Settlement Works.
Not everyone will be able to sell their life insurance policy for cash. Typically, a senior (age 65 and over) who has a life expectancy of 10 years or less, however, may be a good candidate.
Most types of policies can be considered for this kind of purchase-including whole life, universal life, term life, adjustable life, and joint life insurance coverage can qualify for a viatical transaction.
Once an individual decides that they no longer want or need their coverage, they are asked to answer some health-related questions. Most viatical life settlement companies will also review medical records and the person’s life insurance policy in more detail.
If the plan is accepted for a viatical purchase, the policyholder will be presented with a purchase offer from the viatical settlement company – and if the policyholder accepts, the life insurance company is then notified once the contract is finalized.
Upon purchase, the viatical settlement broker will become the new owner and the beneficiary of the policy. When the time comes, the broker will likewise receive the death benefit proceeds from the policy as well.
In most cases, the entire process will take only a few weeks before the policyholder has the funds released to them for use in any way that they choose.
Why Sell Your Life Insurance Policy for Cash?
Today, there are many people – particularly seniors – who may no longer want or need their life insurance coverage. There are many reasons to consider selling your life insurance policy for cash, including:
- You no longer need the coverage due to a change in your business or personal life
- You are over-insured and wish to drop some coverage, yet you don’t want to “waste” the premium dollars that were paid into the policy
- You need the funds for medical or long-term care expenses
- You intend to pay off your mortgage or other large debts with the money you will receive
- The premium on the policy has become unaffordable
- You require additional funds to supplement your retirement income
Factors to Consider Prior to Moving Forward.
While there are many potential advantages, prior to moving forward with a viatical settlement, there are several factors that you should consider.
First, you should ensure that you no longer require the life insurance coverage that you are intending to sell. In this case, will your loved ones and survivors have ample funds for paying off estate taxes, final expenses, and / or other debts that these particular funds were intended for?
Also, it is important to consider any tax-related consequences that may be present. The funds that are received from a viatical settlement transaction are typically taxable in the amount that is over and above the paid-in premiums.
Taking the Next Step.
When considering whether or not a viatical settlement is right for you, talking with a seasoned insurance veteran is generally your best option. We can help you to understand all of your potential alternatives.
We’re experts when it comes to life insurance matters – and because we work with over 40 different companies, we give you an unbiased opinion. If you’d rather have cash than an unwanted life insurance policy, you can get started contacting us.
There’s no obligation to move forward – and in most cases, there is no cost to apply. So, if you are no longer in need of your life insurance coverage, but you don’t want to just cancel or cash out your plan, contact us.