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What is a viatical settlement?
A viatical settlement is the sale of an existing life insurance policy, by someone who is terminally or chronically ill, to a third party for more than its cash surrender value but less than its face value, or death benefit. Viatical settlement is the specific term used to define a life insurance settlement where the insured party is terminally or chronically ill.
In a viatical settlement transaction the life insurance policy holder transfers ownership to a third party. The former policy holder is no longer responsible for the policy premiums and receives a cash payment that’s larger than the surrender value of the policy. The third party, known as a viatical provider, is now responsible for all expenses related to the policy.
Read on to learn more about viatical settlements.
Am I eligible for a viatical?
Health: Viatical settlements are for people who are terminally or chronically ill. Generally this means a person with a limited life expectancy. You will need your attending physician to write a letter verifying that you have a terminal or chronic condition.
Policy Type: Universal, whole, and term life insurance policies are all candidates for a settlement. The majority of the policies that get transacted are universal life.
Policy Size: Policy size should be at least $50,000 in face value.
Does a viatical settlement make sense?
Consider selling your life insurance when:
You can no longer afford your insurance premiums. A viatical is a great way to avoid letting your policy lapse if you can no longer afford the premiums which can often be the case with increasing medical bills. Letting your policy lapse can lead to little or no payout depending on the policy type.
You no longer need to protect against income loss. Another reason to sell your life insurance is that you no longer have a spouse or children that would be dependent on the claim in the case of your death.
Your term policy is approaching it’s expiration date. Term policies typically expire with no cash value and expensive replacement costs. If your term policy expires in the near future it may make sense to convert it into permanent insurance and then engage in a settlement.
You are looking to enjoy your last days. A viatical settlement allows you to supplement your income so that you can really enjoy the rest of your living days. Take on your bucket list.
How to get started with a viatical settlement
Today, utilizing your life insurance agent and a viatical settlement broker is the most common approach to selling a life insurance policy. Oftentimes, a policy owner has maintained a relationship with their life insurance agent through the years and this is a natural first step for advice and information.
Your life insurance agent may select a viatical settlement broker to solicit bids for your policy. Both parties have a duty to you and work on your behalf to secure the best price for your policy.
However, there is a cost for this representation and you will find fees and commissions for the life agent and broker together can be up to 30% of the value of your payout.
Another option is to sell your policy directly to a viatical settlement provider. While this option can be more cost effective, in that you are not paying brokerage commissions, the trade-off is that you will be managing the paperwork and settlement process.
It is important to understand that a viatical settlement provider is a counterparty in the transaction and owes you no representation. Some providers purchase for their own accounts, and others represent investment funds.
Either way, the investors pay fees to providers for the service of purchasing life insurance policies. There should be no direct costs/fees/or commissions charged to you.
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