Life settlements and viatical settlements both involve the sale of a life insurance policy so they may seem identical at first glance. However, there are some key differences to consider.
A life settlement is typically considered when a life insurance policy is no longer needed, wanted, or if the holder simply can no longer afford it. In such cases, they may sell the policy to a third party buyer for an agreed upon price. For life settlements, the policyholder must be 70 years of age or older and have a policy value of $100,000 or more.
Viatical settlements are a type of life settlement. These types of settlements are for individuals with serious illnesses such as Alzheimer’s, ALS, or cancer. In these settlements, the policyholder sells their life insurance policy to a third party, at a discounted rate, in exchange for immediate funds. This is typically done in cases where the policyholder will need a great amount of financial assistance due to their illness. As with life settlements, most companies require policies to have a value of $100,000 or more.
History of viatical settlements
While many people have never heard of them, viatical settlements have been practiced since the 1911 Supreme Court ruling that life insurance policies are public property and can be legally sold to third parties. Viatical settlements became prominent during the AIDS epidemic of the 80s, in which patients were able to sell their insurance policies in order to afford treatments to significantly extend, and in some cases save their lives.
Qualifying for a viatical settlement
In order to qualify for a viatical settlement, the potential seller has to meet three basic criteria. First, the seller must be someone with a life-threatening illness. Second, the life insurance policy must be at least two years old. Lastly, the policy must have a minimum value of $100,000.
All life insurance policy types are accepted, although there are variables that will determine the amount offered from the company handling the settlement. These can include things like the type of illness the seller has, the stage of the illness, the policy’s value, or any other factors deemed relevant.
Reasons to pursue a viatical settlement
One of the most common reasons a person may wish to pursue a viatical settlement is because they simply can’t afford insurance premiums due to their illness. In such cases, the viatical settlement is a practical way to keep their policy.
Viatical settlements can also be a good option if a term policy is about to expire. Instead of letting the policy run out, it may be possible to convert it to a permanent plan and then sell it.
And, of course, a viatical settlement is the best option if there is simply no other way for the seller to afford the medical care they need. A viatical settlement could provide a way for the seller to not only afford their care but also afford a higher quality of life.
Advantages vs. other resources
If one decides that a viatical settlement is right for their situation, the following are the main benefits compared to other options. A viatical settlement will, in nearly all cases, provide a bigger payout than any form of financial assistance. Second, they have a great advantage over life settlements in that viatical settlements are tax-free.
For those who wish to pursue this option, the process is often as brief as a two-page application and a payout within days if the offer is accepted.