There are risks of borrowing against your life insurance—a viatical settlement might be a smarter, debt-free financial option.
When dealing with a serious illness, many people look to their life insurance policies for financial relief. One option is a viatical loan—a form of borrowing where you use your insurance policy as collateral in exchange for immediate funds. These loans are marketed as a fast solution, but in many cases, they come with high costs, complex loan terms, and financial risk.
Unlike a viatical settlement, a loan requires repayment, adds interest, and may reduce your family’s payout after the policyholder’s death. Some patients are surprised to learn that selling their policy can offer a larger payout, eliminate debt, and free them from future premium payments entirely.
Call American Life Fund at (877) 261-0632 or use our simple online form to get a free estimate—see how much your life insurance could be worth today.
Viatical Loans and How They Work
A viatical loan allows a person with a serious illness to borrow against the cash surrender value or surrender value of their life insurance policy. The loan is secured using the face value of the policy and is repaid from the proceeds after the insured dies—or during the borrower’s lifetime, depending on terms.
The owner of the policy must often provide detailed documentation, including medical records, to verify their health condition and estimated life expectancy. Based on these factors, the lender offers a portion of the policy’s value—usually less than you’d receive in a viatical settlement or life settlement.
You remain responsible for premium payments or the lender may increase your total balance by covering them. If the policy lapses, you could lose the entire investment. There are also potential tax implications, so speaking with a financial advisor is recommended before moving forward.
The Real Cost of Viatical Loans
Viatical loans aren’t free money. They come with interest charges, administrative fees, and ongoing obligations. While you receive immediate funds, the total amount you repay—or that’s taken from your policy’s death benefit—can be significantly more than you borrowed.
The loan must be repaid either during your lifetime or from the policy when the insured dies. In many cases, the lender becomes the primary beneficiary, and your family may receive little or nothing. Meanwhile, you’re still responsible for future premiums or risk losing the policy entirely.
Example:
A person with a $250,000 life insurance policy takes out a viatical loan for $90,000. Over time, interest and fees increase the balance to $130,000. When the policyholder passes, the insurance company pays that full amount to the lender. After repayment, the remaining $120,000 goes to the lender’s fee structure and loan settlement, leaving the beneficiaries with nothing.
Viatical Loans vs. Viatical Settlements
Choosing between a viatical loan and a viatical settlement comes down to one key difference: ownership and repayment.
With a viatical loan, you borrow against your life insurance policy and agree to repay the loan—either personally or through the death benefit after you pass. Interest continues to grow, and the total cost can end up consuming your policy’s entire cash value.
In a viatical settlement, you sell your policy (whether that be term/whole/group/FEGLI) directly to a buyer in exchange for a large lump sum cash payment. You owe nothing back, and the new owner becomes responsible for all premiums moving forward. This gives you access to money right away, without future obligations.
Comparison Table:
| Viatical Loan | Viatical Settlement | |
| Ownership of Policy | Retained by policyholder | Transferred to settlement buyer |
| Interest Accrues | Yes—loan balance increases over time | No interest, no repayment required |
| Repayment Required | Yes—by the seller or from death benefits | No repayment |
| Responsibility for Premiums | You or lender | Settlement company takes over |
| Risk to Beneficiaries | High—benefits may be reduced or eliminated | Your personal choice how to use funds |
| Access to Cash | Partial—based on surrender value or percentage | A large, lump sum and usually a larger payout |
In many cases, a viatical settlement offers more value, more security, and more freedom—especially for people facing high medical expenses, rising premiums, or concerns about leaving income for loved ones.
What Is a Viatical Settlement?
A viatical settlement is a way to unlock the full value of your life insurance policy by selling it to a third party in return for a lump sum. Unlike a loan, there’s no debt, no interest, and no repayment. The settlement amount is based on your policy’s face value, your health condition, and your life expectancy.
This option is often chosen by individuals with a serious illness who want immediate access to cash for medical expenses, caregiving, or personal expenses.
Learn more about how viatical settlements work.
Why Thousands Trust American Life Fund
When you’re considering financial decisions during a health crisis, the last thing you need is more complexity or pressure. That’s why American Life Fund does things differently.
We aren’t lenders, and we don’t push high-interest loans. We’re a viatical settlement company with one focus: helping people turn their existing life insurance policies into meaningful, fast, and unrestricted cash—no strings, no stress.
We’ve helped thousands of individuals get more than just a payout. We’ve helped them get time, space, and the ability to focus on what matters most—without worrying about how to pay the next bill.
You don’t need to fight for financial relief alone. You just need to know your policy’s real worth—and what it can do for you now.
See if your policy qualifies for a viatical settlement
Have questions? Call us anytime at (877) 261-0632
Do you have to be diagnosed with a terminal illness to qualify for a viatical loan or settlement?
Not necessarily. While viatical options are often marketed to individuals with a serious illness, eligibility doesn’t require a terminal diagnosis. Many people with serious health conditions—including cancers and progressive diseases—may qualify based on their overall health status and prognosis.
Are funds from a viatical loan or settlement tax free?
It depends. In many cases, a viatical settlement may be considered tax free, particularly if the person is terminally ill and meets specific IRS criteria. Viatical loans, however, are treated differently—since they’re loans, not income, they don’t offer the same tax advantages. Always speak to a qualified tax advisor before making a decision.
Why do some companies offer viatical loans instead of buying the policy outright?
Some companies prefer to invest in viatical loans because they retain less risk—they collect interest, may charge fees, and still recoup the full life insurance value when the seller passes. While this model may benefit the lender, it’s generally less favorable to the policyholder compared to selling the policy directly through a viatical settlement.
Can I sell my life insurance policy if it’s less than two years old?
Life insurance policies must generally be at least two years old to qualify for a viatical settlement or to be eligible for a viatical loan. This rule helps prevent fraud and ensures that the policy has matured enough to hold value.
