Informational
What is a Viatical Settlement?
A Viatical settlement, like a Life Settlement, can be defined as a financial transaction where a policyowner sells an existing life insurance policy to a third-party buyer for more than its cash surrender value but less than the total face amount. The key differences between a viatical settlement and a life settlement have to do with taxation and qualifying factors. Before we jump into the specifics, it’s important to note that viatical settlements and life settlements provide options to monetize a life insurance policy while the insured is still living, which can provide a much-needed lifeline to those who need it most.
Viatical Settlements vs. Life Settlements: Key Differences
Qualifying Factors
Viatical Settlements: Viatical settlements are generally defined as the sale of a policy when the insured has a life expectancy of less than two years. In some states, individuals with a chronic illness—where they may not be terminally ill but have a long-term condition that severely impacts their daily living—may also qualify for a viatical settlement.
Life Settlements: Life settlements are generally available to insureds 65 or older (though younger insureds may qualify in certain situations) who own a life insurance policy of $100,000 or more. Health is considered, but there is no requirement that the insured have a short life expectancy.
Taxation
Viatical Settlements: The proceeds from a viatical settlement are generally tax-free if the insured is terminally or chronically ill as defined by the Internal Revenue Code.
Life Settlements: Proceeds may be subject to tax. We recommend consulting with a tax professional to understand any potential tax implications of pursuing a life settlement.
Reason for Selling
Viatical Settlements: Often pursued to cover urgent medical costs, living expenses, or to ensure a better quality of life in the final stages of a terminal illness.
Life Settlements: Usually considered when the policyowner no longer needs or wants the coverage, would like to reduce their expenses, or desires liquidity for other financial goals.
How Viatical Settlements Work
The process of selling a life insurance policy through a viatical settlement typically follows the steps below:
1
Submit your policy and get an instant estimate.
Get your FREE instant estimate online or call us for a free policy evaluation.
2
Complete the authorization.
Ovid does all the heavy lifting for you, and the authorization enables us to do it.
3
Receive your settlement!
If your policy qualifies, you can choose between a cash settlement, coverage with no future premiums, cash for life, or a combination of any payout option!
Benefits of Viatical Settlements
Viatical settlements offer several benefits, particularly for those facing terminal illness:
Immediate Cash
Provides financial relief during a challenging time, helping to cover medical expenses, debt, or everyday living costs.
No Future Premiums
In addition to receiving a lump-sum cash payment, you can also benefit from the fact that you will no longer need to pay premiums, alleviating a financial burden.
Tax Advantages
As mentioned above, viatical settlement proceeds are generally tax-free, offering added value compared to other financial options.Risks and Considerations
While viatical settlements can be a lifeline for those who are in dire need of liquidity, there are considerations you should take before pursuing a viatical settlement. Perhaps most importantly, when you sell your life insurance policy, your beneficiaries will no longer receive a death benefit unless you opt for a Retained Death Benefit. Additionally, you will want to ensure you are working with a licensed life settlement provider authorized to transact viatical settlements in your state of residence. You can check with your state life insurance regulator to see if the provider you are considering is licensed in your state.
Regulation of Viatical Settlements
Viatical settlements are regulated at the state level, with laws varying widely. It’s essential to check the regulations in your state and work with a licensed settlement provider to ensure compliance and protection.
Is a Viatical Settlement Right for You?
Deciding whether to pursue a viatical settlement is deeply personal and should be made with careful consideration of your financial needs, health status, and long-term goals. For some, it offers a critical lifeline, providing much-needed funding during a difficult time. For others, the loss of the death benefit for their beneficiaries may outweigh the benefits.
If you’re considering a viatical settlement, consult with financial and legal professionals to explore all your options and ensure you make the best decision for your unique circumstances. If you decide that a viatical settlement may be right for you, we’re here to provide an instant estimate of what your policy may be worth.
