Key Points of Viatical Settlements
Viatical settlements provide a financial option for those with a terminal or chronic illness by allowing them to sell their life insurance policy before death. This transaction results in immediate cash, which can be utilized for medical expenses, living costs, or any other pressing needs, but it also transfers the death benefit to the buyer, who continues paying the premiums.
Deep Dive into Viatical Settlement Mechanics
A viatical settlement involves selling a life insurance policy to a third party for less than its net death benefit but more than its cash surrender value. The third party, or buyer, then becomes responsible for ongoing premium payments and will receive the full death benefit upon the death of the original policyholder. The appeal of viatical settlements lies in the policyholder’s ability to unlock financial resources that would otherwise be inaccessible until after their death.
Risks and Considerations
Investing in viatical settlements can be akin to gambling on life expectancy. Estimating the time of death is speculative at best, making it a risky affair for investors. For the seller, the main concern is receiving fair value for the policy, as they part with a significant asset under financially strained circumstances.
Comparing Viatical and Life Settlements
While both viatical and life settlements involve selling a life insurance policy, they cater to different groups based on health status and expected longevity. Life settlements are generally suited for the less critically ill with a longer expected lifespan, offering a financial solution without the dire connotations of a viatical settlement.
Special Considerations and Ethical Points
Selling a policy via a viatical settlement raises both financial and ethical considerations. Prospective sellers should consult with financial advisors, consider all potential implications, and explore alternative financial options, such as borrowing against the value of the policy or seeking an accelerated death benefit.
Related Terms
- Life Insurance: A contract providing a death benefit to the beneficiary upon the death of the insured.
- Accelerated Death Benefit: Allows the policyholder to receive a portion of the life insurance death benefit while they are still alive under certain conditions.
- Life Settlement: The sale of a life insurance policy by a senior or less critically ill individual who no longer needs the policy or can no longer afford the premiums.
Recommended Reading
To further understand viatical settlements and their impact on financial planning, consider the following texts:
- “The Life Insurance Handbook” by Ralph R. Roberts
- “Settling for More: The Journey Through Life and Life Insurance” by Peter Kensicki
- “Living and Dying with Grace: Health, Illness, Death, and Beyond” by Alua Arthur
Combining life’s uncertainties with financial necessities, viatical settlements represent a poignant intersection of economics and human experience, offering both a solution and a dilemma wrapped in complex ethical and financial layers.
