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what is a viatical settlement

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 not uncommon, aren’t widely discussed.

Many people have no idea what a viatical settlement is or how a viatical settlement can provide financial peace of mind. A viatical settlement takes place when the insured of a life insurance policy (also known as the viator) sells their life insurance policy to a third party (the viatical settlement provider) for a lump sum cash payout—this payout is less than the death benefit, but more than the cash surrender value. The buyer then becomes the new life insurance policyholder, pays future premiums, and collects the death benefit with the viator passes, as the sole beneficiary.

The sale of a life insurance policy is a viable solution for individuals who are facing financial hardships, particularly those who are dealing with serious, terminal illnesses. If you’re struggling to pay your medical bills or need to pay for long-term medical care, selling your life insurance policy could relieve you of your debt or financial obligations relating to additional premiums. Read on for an in-depth walk-through of how to sell your life insurance policy for cash.

History of Life Settlements in the United States

Although viatical settlements have been around for quite some time, many life policyholders are unaware of the financial benefits a viatical settlement can provide to an individual policyholder or loved one.

The legal basis for life settlements as a legitimate, legal transaction for life insurance owners can be found in the “Grigsby v. Russell” case. In the case of “Grigsby v. Russell,” doctor A.H. Grigsby had an ill patient named John C. Burchard who required a special and expensive operation. In hopes of avoiding a financial hole, he volunteered to sell his own life insurance policy to the doctor for $100, if he agreed to pay the remainder of the insurance policy premiums. Dr. Grigsby agreed and that’s how Burchard became the first person in history to successfully sell a life insurance policy for a cash payout.

One year later, Dr. Grigsby tried to acquire the insurance policy’s death benefit when Burchard passed away, but an executor took the case to court and won. This case eventually ended up in the Supreme Court. Ultimately, Justice Oliver Wendell Holmes, an Associate of Justice of the Supreme Court, described life insurance as property, which meant it could be transferred to a third party by the viator, according to the insurance laws.

This type of transaction became popular in the ’80s when people living with AIDS had life insurance policies they didn’t need. This led to what we now know as the viatical industry—when seniors or individuals who are terminally ill need to sell their insurance policy for a quick cash payout.

Viatical Settlements Vs. Senior Settlements

There are two different types of life settlements—senior settlements and viatical settlements.

A senior settlement, also known as a life settlement, is a transaction through which the owner of a life insurance policy sells his or her policy to a buyer or third party life settlement broker in exchange for a cash settlement that can almost quadruple the amount of the policy owner’s cash surrender value. Note: Senior settlements are usually owned by people who are in their Golden Age or 70 and older.

The second kind of life settlement is a viatical settlement. A viatical settlement is when a policyholder with a terminal illness sells their life policy to a third party at a discount from its cash value for an immediate payout. The main difference between a viatical settlement and a life settlement is that a viatical settlement is reserved for those who are terminally ill—individuals who have a two-year life expectancy.

The viatical settlement industry became prominent 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 their lives. Today, viatical and life settlements are commonplace solutions for those experiencing financial hardship due to medical expenses.

Who Provides Viatical Settlements?

Viatical settlements are usually done through a viatical settlement broker or a viatical settlement company. A viatical settlement broker is an individual who negotiates on behalf of the insured to secure an offer. Whereas a viatical company is an organization that’s licensed to purchase life insurance policies directly from the insured. Another key difference is that a viatical settlement broker normally charges the insured an applicable fee to help negotiate an offer while a viatical settlement company does not.

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 life insurance policy information you have on hand. Then, the viatical company or broker reviews and verifies this information. Once confirmed, the viatical broker or 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.

Who Qualifies for a Viatical Settlement?

According to the National Association of Insurance Commissioners, an individual who has a chronic illness (defined as a condition that affects the activities of daily living) and an existing life insurance policy 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.

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, depending on state laws.

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 now instead of waiting for a policy’s death benefit to pay for them later.

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 back to the business entity, 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 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 payout:

  • 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 or hospice
  • Get extra help around the house with cleaning, childcare, 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 settlement cash payment and it’s 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 instead of making payments to an insurance company.

Overall, viatical settlement transactions are 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.

Wondering if you qualify for a viatical settlement? Find out instantly by using our simple online form now.

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 not uncommon, aren’t widely discussed.

Many people have no idea what a viatical settlement is or how a viatical settlement can provide financial peace of mind. A viatical settlement takes place when the insured of alife insurance policy (also known as the viator) sells their life insurance policy to a third party (the viatical settlement provider) for a lump sum cash payout—this payout is less than the death benefit, but more than the cash surrender value. The buyer then becomes the new life insurance policyholder, pays future premiums, and collects the death benefit with the viator passes, as the sole beneficiary.

The sale of a life insurance policy is a viable solution for individuals who are facing financial hardships, particularly those who are dealing with serious, terminal illnesses. If you’re struggling to pay your medical bills or need to pay for long-term medical care, selling your life insurance policy could relieve you of your debt or financial obligations relating to additional premiums. Read on for an in-depth walk-through of how to sell your life insurance policy for cash.

History of Life Settlements in the United States

Although viatical settlements have been around for quite some time, many life policyholders are unaware of the financial benefits a viatical settlement can provide to an individual policyholder or loved one.

The legal basis for life settlements as a legitimate, legal transaction for life insurance owners can be found in the “Grigsby v. Russell” case. In the case of “Grigsby v. Russell,” doctor A.H. Grigsby had an ill patient named John C. Burchard who required a special and expensive operation. In hopes of avoiding a financial hole, he volunteered to sell his own life insurance policy to the doctor for $100, if he agreed to pay the remainder of the insurance policy premiums. Dr. Grigsby agreed and that’s how Burchard became the first person in history to successfully sell a life insurance policy for a cash payout.

One year later, Dr. Grigsby tried to acquire the insurance policy’s death benefit when Burchard passed away, but an executor took the case to court and won. This case eventually ended up in the Supreme Court. Ultimately, Justice Oliver Wendell Holmes, an Associate of Justice of the Supreme Court, described life insurance as property, which meant it could be transferred to a third party by the viator, according to the insurance laws.

This type of transaction became popular in the ’80s when people living with AIDS had life insurance policies they didn’t need. This led to what we now know as the viatical industry—when seniors or individuals who are terminally ill need to sell their insurance policy for a quick cash payout.

Viatical Settlements Vs. Senior Settlements

There are two different types of life settlements—senior settlements and viatical settlements.

A senior settlement, also known as a life settlement, is a transaction through which the owner of a life insurance policy sells his or her policy to a buyer or third party life settlement broker in exchange for a cash settlement that can almost quadruple the amount of the policy owner’s cash surrender value. Note: Senior settlements are usually owned by people who are in their Golden Age or 70 and older.

The second kind of life settlement is a viatical settlement. A viatical settlement is when a policyholder with a terminal illness sells their life policy to a third party at a discount from its cash value for an immediate payout. The main difference between a viatical settlement and a life settlement is that a viatical settlement is reserved for those who are terminally ill—individuals who have a two-year life expectancy.

The viatical settlement industry became prominent 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 their lives. Today, viatical and life settlements are commonplace solutions for those experiencing financial hardship due to medical expenses.

Who Provides Viatical Settlements?

Viatical settlements are usually done through a viatical settlement broker or a viatical settlement company. A viatical settlement broker is an individual who negotiates on behalf of the insured to secure an offer. Whereas a viatical company is an organization that’s licensed to purchase life insurance policies directly from the insured. Another key difference is that a viatical settlement broker normally charges the insured an applicable fee to help negotiate an offer while a viatical settlement company does not.

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 life insurance policy information you have on hand. Then, the viatical company or broker reviews and verifies this information. Once confirmed, the viatical broker or 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.

Who Qualifies for a Viatical Settlement?

According to the National Association of Insurance Commissioners, an individual who has a chronic illness (defined as a condition that affects the activities of daily living) and an existing life insurance policy 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.

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, depending on state laws.

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 now instead of waiting for a policy’s death benefit to pay for them later.

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 back to the business entity, 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 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 payout:

  • 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 or hospice
  • Get extra help around the house with cleaning, childcare, 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 settlement cash payment and it’s 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 instead of making payments to an insurance company.

Overall, viatical settlement transactions are 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.

Wondering if you qualify for a viatical settlement? Find out instantly by using our simple online form now.

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