When researching life settlements and viatical settlements, it’s easy to get confused.

If you’re looking to sell your life insurance policy, but aren’t sure what type of settlement is right for you, we can help.

In this article, we’ll outline the key differences between life settlements vs. viatical settlements, while providing helpful information along the way.

What Is a Viatical Settlement?

A life insurance policy is considered an asset that you own, meaning insurance policyholders can sell their life insurance for a lump-sum cash payment, also known as a viatical settlement

Viatical settlements are designed for life insurance policyholders with life-threatening illnesses, reduced life expectancies, or chronic health issues.

Viatical settlement companies, like American Life Fund, purchase life insurance policies from individuals with life-threatening illnesses. In exchange for selling their policy, we provide clients with a lump-sum cash settlement. As the viatical settlement company, we take over paying the monthly insurance premiums on the policy and become the beneficiary.

Existing Life Insurance Policy

In order to qualify for a viatical settlement, you must currently have a life insurance policy with a face-value amount of $100,000 or more. Also, your current policy must be at least 2 years old at the time you are looking to sell. 

Almost all policy types are eligible to sell. Whether you have whole life, term life, universal, group, or joint life insurance, you could be eligible for a viatical settlement.

Life Expectancy

While the definition of a viatical settlement states that they are intended for those with a life-threatening illness— who have a life expectancy of 2-4 years— that is not a requirement. In other words, at American Life Fund, we have offered plenty of viatical settlements to individuals who did not fit into this narrowly defined category. 

Payout based on Medical Condition/Health

As we mentioned earlier, viatical settlements are specifically reserved for people suffering from a life-threatening or chronic illness—this means that health status, along with life expectancy, are the main factors considered when determining the value of individual viatical settlements. More specifically, the more serious someone’s illness is, the higher their viatical settlement offer and their payout will be. 

What Is a Life Settlement?

A life settlement, or “senior settlement”, is a financial transaction where the owner of a life insurance policy (the seller) transfers ownership and beneficiary rights to a life settlement company (the purchaser). 

In exchange for selling their life insurance policy to the life settlement company, the seller receives a cash payout in the form of a settlement.

Life settlements are designed for otherwise healthy seniors, typically aged 75 or older, with an average life expectancy.

Selling Your Policy

A life settlement allows the policyholder to sell their life insurance policy in exchange for cash. This means, no more paying pricey premiums—as payments become the responsibility of the life settlement company purchasing your policy.

A Transaction, Not A Loan

Both life settlements and viatical settlements are not loans, they are one-time cash transactions that result in a full transfer of ownership of your life insurance policy, in exchange for a lump-sum cash payment to you. 

As the seller, you have the option to spend the funds from your life or viatical settlement however you choose. There are no restrictions!

Extra Money for Retirement

Choosing to sell your life insurance policy through a life settlement makes the option of early retirement a possibility. And even if you’re not quite ready to retire, the money you’ll receive from selling your policy means more money for your retirement, once you decide to take that step.

Also, by choosing to sell your policy in a life settlement, you will obtain significantly more money than if you were to simply surrender your policy or allow it to lapse.

What Is The Difference Between a Viatical Settlement and a Life Settlement?

If you’re looking to sell your life insurance policy for a lump-sum cash payment, you can do so through either a viatical settlement or a life settlement. 

While there is some overlap between life settlements and viatical settlements, there are certainly some very important, key differences between them. We will explore these differences below.

life settlement vs. viatical settlement infograph

Medical Diagnosis and Health Conditions

The main difference between viatical and life settlements has to do with the policyholder themselves. In general, life settlements are for healthy seniors, while viaticals are reserved for those living with a life-threatening illness, regardless of their age. 

Examples of life-threatening illnesses that qualify for a viatical settlement include: cancer, ALS, Alzheimer’s, etc. Additionally—as we touched on earlier— life expectancy is also an important factor when it comes to qualifying for a viatical settlement.

In contrast, with a life settlement, you don’t necessarily need to be ill, but you do typically need to be over the age of 75.

Payout Amount

As a general rule of thumb, the larger your life insurance policy (and death benefit), the larger your payout amount. Also, keep in mind that certain types of life insurance may be more valuable to the company than others, which can, in turn, affect the payout amount of your viatical or life settlement. 

Viatical settlement payouts tend to be larger than life settlements, due to their specialized nature, and the fact that— unlike life settlements— they are not taxed as income. Generally, viatical settlements payout 50-70% of your overall insurance policy’s face value. 

Tax Impact

Regardless of which type of settlement you choose to go with, a life settlement or a viatical settlement, it is important that you understand the tax impact of each. 

Oftentimes, when the owner of a life insurance policy cashes out their policy through a life settlement, they are forced to pay taxes on their settlement. This is because life settlements are actually considered taxable income

On the other hand, with a viatical settlement, the entire settlement is tax-free—meaning you owe no additional funds to any financial institution! This is because the government recognizes that someone with a life-threatening illness should be able to cash in their policy whenever they choose, due to their difficult and oftentimes expensive circumstances. 

Viatical Settlements vs. Life Settlements Frequently Asked Questions

Which One is Right for Me?

If you’re a healthy senior, a life settlement would be the way to go. However, if you are currently living with a life-threatening illness, a viatical settlement is likely more appropriate for you. In order to qualify for a viatical settlement, you must also have held your current life insurance policy for 2 or more years, and your policy must have a face value of $100,000.

How to Choose a Viatical Settlement or Life Settlement Company?

Once you’ve determined what type of settlement fits your situation, you should do your research— to ensure you find the best company to suit your unique needs.

If you decide a viatical settlement is the right choice for you, look no further than us here at American Life Fund. We have extensive expertise in viatical settlements and have helped hundreds of individuals with life-threatening illnesses sell their life insurance policy for immediate funds. 

To learn more and see if you qualify for a viatical settlement, fill out our simple and free form here.

See if you qualify.

Call us today at (877) 959-2968

Free instant estimate. No obligation.