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Viatical Settlement

Purpose

To raise cash from the sale of a life insurance policy when the insured is terminally ill. A viatical settlement is not an insurance product.

How it works

Viatical companies provide cash to people with terminal or life-threatening illnesses by buying their life-insurance policies. The Latin word "viaticum" means an allowance for a journey's expenses. Buyers of policies are paid the death benefits when insureds die. Insureds generally must have life expectancies of two years or less. The price is based on the size of the death benefit and the premiums, and on the quality and size of the insurer. The amount a company pays is more than the cash surrender value and less than the policy's face amount, and it may also vary by the insured's prognosis.

Who needs it

A critically ill insured who needs cash.

Who may not need it

Certain people whose beneficiaries need the policy's death benefit. This can be a tough call. Any cash an insured receives for selling a policy is likely to be subject to income tax, while a death benefit is not. Also, the death benefit is likely to be much larger than a viatical payment. Policyowners may want to see if the issuing insurer pays accelerated death benefits, which may be an alternative to a settlement.

When to sell it

A viatical payment is typically available only within the last two years of life expectancy.

How you get paid

Viatical payments are usually in the form of a lump sum. Because the buyer will have no insurable interest, be sure to sell your policy only to reputable companies. Reputable buyers include accredited investors and qualified insitutional buyers.


Terms to Know

  • Insurable Interest  (View Definition )