There may come a time when you no longer need nor want your life insurance policy. While your life insurance was a financial safety net that protected your beneficiaries from financial ruin or struggles in the event of your passing, you may find that your plan no longer suits you since you no longer need it after your children have grown up, or you may find that your monthly premiums just aren’t as affordable as they used to be. Whatever the reason you’re thinking of giving up your insurance policy, there’s a good chance that you can do something better than just canceling it.
Different types of life insurance policies are good for different circumstances. For example, you may have chosen term life insurance if you only needed a policy up to a particular time, such as after the kids graduated college. You may have bought whole life insurance if you believed that you needed to be covered by an insurance company for your entire life. Whole policies generally charge additional premiums, and you may find that it just isn’t worth paying anymore. Whatever your reason to want out of your policy, you can likely sell it. Your two main options are a life settlement or a viatical settlement.
What is a life settlement?
A life settlement is an agreement where you sell your existing insurance policy to a third-party buyer for a one-time cash payment. After this sale, the buyer then takes over the responsibility of paying the premiums on the policy. In return, they become the new beneficiary of the policy’s death benefit and will collect it upon your passing. The payout for a life settlement is typically more than the cash surrender value of the policy but less than the death benefit. The exact figures will depend on your broker and the buyer.
One might choose to sell their life insurance policy if they have financial emergencies, need more money for retirement, or if they simply don’t want to keep up the premiums. The right to sell a life insurance policy as the personal property was established in the United States Supreme Court case Grigsby v Russell. In this situation, Russell sold his insurance policy for $100 to Dr. Grigsby as payment for necessary surgery. When it came time, much later, for Dr. Grigsby to collect on the death benefit, it was ruled that the sale of the insurance was valid. This event gave birth to the life settlement industry.
What is a viatical settlement?
A viatical settlement is similar to a life settlement but with a few key differences. The first, and most important of these, is how one qualifies for a viatical settlement. A viatical settlement contract is only available to a life insurance policyholder whose plan values $100,000 or greater and who has a terminal illness or life-threatening chronic illness. Typically, viatical settlement providers work with people with a life expectancy of two to four years.
The business of viatical settlements began in earnest during the AIDS epidemic of the 1980s. Brokers of viatical settlements advertised heavily to men living with HIV and AIDS at the time, presenting a viatical settlement as a better option than holding onto their life insurance policies. While critics considered this a gruesome and ghoulish practice at the time, the truth is that viatical settlement companies gave many of these men the opportunity to afford new treatments that significantly extended their lives.
If you qualify for a viatical settlement, you can work with a viatical settlement broker to fill out a brief application that details some basic personal information, your medical records, and your diagnosis and stage of illness. Typically, your application can be processed in just a few business days, and you’ll be able to come to a written agreement regarding how big of a lump sum cash payout you can expect.
What can viatical settlements be used for?
Arguably the best thing about viatical settlements is that they can be used for anything of your choosing—there are absolutely no limitations. The most common reason Viators seek them out is for financial assistance with medical costs including treatments, care, and quality of life benefits. Cancer patients viatical settlement providers to afford the best treatment and to obtain the peace of mind that their financial burdens are lessened.
Viatical settlement transactions are also fast and provide near-instant interest-free cash to ill patients in need. The money can be used to hire financial planners to see to the Viator’s end of life financial needs if the time comes. Ill people may also choose to use the money to obtain at-home care as an alternative to hospital care. They may even choose to use the money simply to improve their quality of life while they can still live independently. If a Viator wants to use the money to pursue an unforgettable vacation or to buy a new car, it’s their right to do so. They can even use the money to leave something for family members after their passing. Viators have total freedom with the money.
Are there other benefits?
A huge benefit of viatical settlements over life settlements or other cash-out options is that the money from a viatical settlement contract is all tax-free. In most cases where a policyholder sells their policy to a life settlement company, they have to pay income tax, or even estate tax, on the money. Viatical settlements are free from federal income tax and other fees, so Viators receive the full amount for their policy, regardless of the type.
A viatical settlement can be a great answer for terminally ill policyholders, but it’s always important to do as much preparation as possible before committing. A viatical settlement broker can help you contact various viatical settlement companies to help determine which one will offer you the best deal for your situation. It’s also a good idea to meet with a financial advisor to determine if any creditors may be able to claim part of your settlement. Once you’re sure you’re ready, you can use a viatical settlement to improve your situation in any way you want.