What is a Viatical Settlement?
A viatical settlement is a way for terminally ill patients to get immediate access to insurance money that is designated to be paid out to a beneficiary. If the patient has a life insurance policy, he can sell it to a willing party for a lump sum, and the buyer will become the beneficiary -- getting the money the insurer pays out as a death benefit. This type of settlement is a popular option for those who face escalating expenses during their time of care.
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The Facts
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A viatical settlement involves the sale of a life insurance policy by the policy owner before the policy matures. The policy owner is usually a terminally ill patient. In the transaction, the insured person consents to signing over the beneficiary designation to the purchasing party. After receiving funds from the buyer, the insured has 15 days to return the money if he has a change of heart. The purchasing party collects the face value of the policy when the insured person dies.
Benefits
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A viatical settlement benefits both sides of the agreement. The purchasing party--which could be a viatical company, broker, or even a family member or friend--buys a life insurance policy at a price that is less than the full face value. In return, the insured gets money that normally wouldn't be available to him. The insured person can use the money to pay for health care, living expenses or whatever she chooses.
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Considerations
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Before entering a viatical settlement, the purchaser considers the size of the policy and how much longer the insured person is expected to live. Many large firms will not buy policies with a face value of less than $10,000. Friends and family members can buy smaller policies that aren't picked up by a company or broker. The amount of the settlement is directly proportionate to the remaining life expectancy of the insured. The longer the life expectancy the smaller the offer; if death is expected soon, the payout is higher.
Function
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Viatical companies are in the business of buying insurance policies from those who are willing to sell them in order to get the money now. An insured person would consider entering into a settlement once he knows he has a terminal illness. Most viatical settlements are negotiated when the patient has two years or less to live. The purchaser usually analyzes medical records and policy information before making the agreement.
Misconceptions
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Although some people might think a viatical agreement allows an investor to profit from a dying person's misfortune, it is far from that. Viatical companies or parties agreeing to buy the insurance policy are only providing a means for the ill person to get needed funds when no alternative exists.
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