What is a Viatical Settlement?
It’s quite possible that you’ve never heard of the term ‘viatical settlement’ until this very moment. That’s because viatical settlements, while being common occurrences, aren’t widely discussed.
Many people have no idea what it is or how viatical settlements provide financial peace of mind. A viatical settlement takes place when a person with a serious illness, such as cancer, sells their life insurance policy to a third party for funds. It’s a viable financial solution for cancer patients who often need a large amount of financial assistance for items such as medical treatments or living expenses.
Viatical Settlement History
Many life policyholders don’t know that viatical settlements have been around for over a century. In 1911, the supreme courts ruled that life settlements or the sale of a life insurance policy to a third party, are lawful transactions. These life settlement regulations were established under the idea that a life insurance policy is considered property, and therefore, the insured has the right to sell their policy to a third party. From these insurance laws, the life settlement industry was born.
There are two different types of life settlements. There are senior settlements, also known as life settlements, which occurs when a senior-aged individual, usually 70 or older, sells their life policy to a third party. The second kind of life settlement is a viatical settlement. A viatical settlement is when someone with a life-threatening illness sells their life policy to a third party. The viatical settlement industry became prominent in the 1980s during the AIDS epidemic. By selling their policy through viatical life insurance settlements, AIDS patients were able to use their policy to attain expensive medical treatments to extend and save their lives. Today, viatical and life settlements are commonplace financial options for those looking to benefit from their policy.
Who Provides Viatical Settlements?
Viatical settlements are usually done through a viatical settlement broker or a viatical settlement company. A viatical settlement broker is someone who negotiates a viatical settlement on behalf of the insured. A viatical company is an organization that’s licensed to purchase policies directly. Another key difference is that a viatical settlement broker normally charges the insured a fee to help negotiate an offer while a viatical settlement company does not.
Who Qualifies for a Viatical Settlement?
If you have a life-threatening illness such as cancer, ALS, etc., and an existing life insurance policy, you may qualify for a viatical life settlement. All policy types are accepted including whole, term, group, and universal. Keep in mind that viatical life settlement companies have different qualifications. Each life settlement company takes various factors into account including the type of disease, the stage the disease is in, the type of policy you have, the policy’s face value, insurance premiums, and other relevant information. They use these factors to calculate the offer amount presented to the patient.
What is the Viatical Settlement Process?
You start by getting a free estimate. Then, you talk with a counselor about your questions or concerns. You submit a short, two-page
application along with any medical records or policy information you have on hand. Then, the viatical company reviews and verifies this information. Once confirmed, the company presents you with an offer for your policy. If you accept the offer, you sign and send back the final paperwork. Within days, the company becomes the new policy owner and you receive a large lump sum for your policy. You are no longer responsible for the insurance premium payments and can use your payout however you choose. It’s that simple.
How do Viatical Settlements Differ from Other Cancer Financial Resources?
The main difference between viatical settlements and other cancer financial resources is the level of financial assistance available. Viatical settlements are able to provide a large sum of money since the amount is usually a large portion of an already large life insurance policy amount. For example, if someone were to sell their $100,000 policy, they could receive as much as $70,000 from that policy. Note, however, that the settlement amount varies based on the unique factors listed above. Additionally, viatical settlements are completely tax-free. In contrast, when you take the cash surrender value of your life insurance policy or if you wait until your death, the proceeds of your life insurance may be subject to income tax or estate tax.
Other resources, such as those provided by nonprofit cancer organizations, usually only help with small items such as gas cards, wigs, groceries, discounts on prescriptions, and other items. In contrast, a viatical settlement can often help with numerous larger expenses.
Another option cancer patients may choose to pursue is a loan through a financial institution. While this option can provide a large number of funds just like a viatical settlement, they tend to be extremely high-interest. In many cases, the individual may not be able to pay back the loan amount, and then, they become further in debt than they were before they took out the loan. Additionally, even if you can get a low-interest loan, you have to pay the monthly payments. In contrast, with a viatical settlement transaction, you no longer have to pay your monthly life insurance premium payments so, in addition to getting the lump sum, you also reduce your monthly bills.
How Can You Use a Viatical Settlement Cash Payment?
Now, that you know the answer to the question “what is a viatical settlement”, you may be wondering how you can use your lump sum from a viatical settlement. Here’s the good news — there are absolutely no restrictions on the cash payment you receive from your viatical settlement. Once you have the funds, you can use them exactly as you like. Here are just a few of the ways that people decide to use their viatical settlements:
- Pay off medical bills
- Pursue additional treatment
- Pay for experimental cancer treatments, not covered by insurance
- Travel to receive medical care
- Cover their wages so they can quit their jobs or take time off
- Allow their family members to take time off work
- Pay for home care
- Get extra help around the house with cleaning, child care, etc.
- Reduce other debts
- Pay off their home mortgages
- Reimburse family members for their care
- Take a trip with their family
If you have an idea on how to use your viatical settlement cash payment and it is not listed here, that’s fine. Again, you can use the funds however you want. Unfortunately, financial stress can get in the way of healing and when you have a bit of extra money, you can truly focus on recovery and spending extra time with your family.
Overall, viatical settlement transactions a great option for cancer patients because it provides the level of financial assistance needed without any costly fees or interest rates.
We hope this guide helps answer the “what is a viatical settlement” question for you. If you would like to learn more about the viatical settlement process and see if you qualify for one, read more about the process.
At American Life Fund, we are committed to helping our clients get the funds they need as quickly as possible. If you’d like to speak with one of our caring and dedicated counselors, please call us at 877-297-4592, or reach out to us online.
Wondering how much money you can get from a viatical settlement? Get an estimate online now.