For policyholders facing a serious or terminal illness, managing both medical and financial challenges can feel overwhelming. One option that offers relief is a viatical settlement—a financial arrangement that allows you to sell your life insurance policy to a third-party buyer in exchange for a lump-sum payment. In most cases, this payout is significantly higher than the policy’s surrender value, providing immediate funds for treatment costs, long-term care, or other personal expenses.
So, what is a viatical settlement exactly? It’s a transaction designed specifically for those who are terminally or chronically ill and no longer need or can afford their life insurance coverage. The licensed provider or institutional buyer assumes responsibility for future premiums and collects the death benefit once the policyholder passes, while the seller gains financial flexibility during their lifetime.
In this guide, we’ll explain how viatical settlements work, who qualifies, the potential pros and cons, and how much your policy may be worth. You’ll also learn how Ovid helps policyholders navigate this process with transparency—providing free estimates, expert insights, and personalized guidance to ensure you make the best financial decision for your situation.
Key Takeaways
- A viatical settlement is the sale of a life insurance policy by someone who is terminally or chronically ill to a third-party buyer for a lump-sum payment.
- Most policyholders qualify if they have a life expectancy of 24 months or less, as defined under federal viatical settlement guidelines.
- Benefits include receiving immediate cash, eliminating the need to continue paying premiums, and gaining financial flexibility for medical or personal expenses.
- Viatical settlement proceeds are generally exempt from federal income tax under IRC Section 101(g) when the insured is terminally or chronically ill and the buyer is a licensed viatical settlement provider.
- Ovid provides free evaluations to help policyholders determine whether their policy qualifies and how much it may be worth.
What Is a Viatical Settlement?
A viatical settlement is the sale of a life insurance policy by someone with a terminal or chronic illness in exchange for a lump-sum payment. This arrangement provides immediate access to funds when they’re needed most—often to cover medical care, living expenses, or other financial priorities. Once the sale is complete, the buyer assumes responsibility for future premium payments and receives the policy’s death benefit when the insured passes away. In short, a viatical settlement allows policyholders to unlock the value of their life insurance while they are still alive, turning an otherwise illiquid asset into meaningful financial support.
How Does a Viatical Settlement Work?
The process of selling a life insurance policy through a viatical settlement is straightforward and confidential. Here’s how it typically works:
- Request an estimate or quote – The policyholder contacts a viatical settlement company, such as Ovid, for a free policy evaluation.
- Submit medical and policy information – Health records and insurance details are reviewed to determine eligibility.
- Policy assessment – Buyers evaluate life expectancy, policy type, and value to estimate the offer.
- Receive and accept an offer – If the offer meets the policyholder’s needs, they agree to the sale terms.
- Transfer ownership and receive payment – The buyer assumes ownership of the policy, and the seller receives a lump-sum payout, usually within weeks.
Ovid manages this process from start to finish, ensuring clarity, speed, and compassion at every step.
How Do You Qualify for a Viatical Settlement?
Several factors determine who qualifies for a viatical settlement, including health condition, policy type, and overall value.
Health Requirements
Most viatical settlements involve policyholders who are terminally ill (life expectancy ≤ 24 months). Some cases may also qualify under chronic illness definitions, which require certification of long-term inability to perform daily activities, depending on state and IRS criteria. However, some settlements may still be possible for those with chronic conditions, depending on state laws and buyer criteria.
Policy Type and Value Requirements
Most buyers prefer universal, whole, or convertible term life insurance policies, typically with a minimum face value of $100,000. Policies with high premiums may be less attractive unless the death benefit is significant enough to justify the investment.
Difference from Life Settlements
A viatical settlement differs from a traditional life settlement, which is usually intended for seniors without a terminal diagnosis who want to sell their policy for financial reasons. Viatical settlements, by contrast, focus on providing immediate financial relief for those facing serious health challenges.
What Is My Policy Worth in a Viatical Settlement?
The amount you receive from a viatical settlement depends on several key factors that determine your policy’s market value. Ovid can help you understand these variables and secure the best possible offer.
Key Factors That Affect Valuation
- Face value of the policy
- Health status and life expectancy
- Cash value and ongoing premium obligations
- Policy type and insurer reputation
Depending on these factors, sellers typically receive between 50% and 80% of the policy’s death benefit in viatical settlements, though offers can vary based on life expectancy, policy size, and premium obligations.
Tax Implications
One of the major advantages of viatical settlements is their favorable tax treatment. In most cases, proceeds are tax-free under federal law when the policyholder is terminally ill. This sets viatical settlements apart from traditional life settlements, which may be subject to income or capital gains taxes. Learn more about these rules here.
Pros and Cons of a Viatical Settlement
Before making a decision, it’s important to understand both the benefits and potential drawbacks.
Benefits
- Immediate access to cash for medical care, debt repayment, or personal expenses.
- No more premium payments, freeing up monthly finances.
- Potentially tax-free proceeds under IRS guidelines for terminal illness.
- Financial relief and peace of mind for the policyholder and their family.
Drawbacks
- The death benefit is forfeited, meaning beneficiaries won’t receive the payout.
- Proceeds may affect Medicaid or other benefits eligibility.
- The process requires sharing personal medical and financial details with buyers.
- Only available to those who meet specific health and policy criteria.
How Ovid Helps You Navigate Viatical Settlements
Deciding to sell a life insurance policy can be a deeply personal and emotional decision—especially when facing serious illness. Ovid understands this and offers a compassionate, transparent process that protects policyholders’ best interests.
Ovid provides free policy evaluations to help determine whether your policy qualifies and how much it may be worth. They also connect you with trusted institutional buyers, ensuring competitive offers and a fast, secure payout. With Ovid, you gain both clarity and confidence—knowing your decision is guided by experts who prioritize your financial well-being.
If you’re facing a serious illness and want to understand your policy’s value, contact Ovid for a no-obligation quote today.
Frequently Asked Questions About Viatical Settlements
Who qualifies for a viatical settlement?
Individuals with a terminal illness and a life expectancy of 24 months or less generally qualify. In some cases, those with chronic illnesses may also be eligible, depending on state regulations and provider guidelines.
Are viatical settlements tax-free?
Yes, the IRS typically treats viatical settlements as tax-exempt when the insured is terminally or chronically ill and meets specific federal criteria.
How long does the viatical settlement process take?
Most viatical settlements are completed within 4–8 weeks, depending on medical record retrieval, policy verification, and state-required disclosures.
Can I sell a term life policy in a viatical settlement?
Yes, convertible term life policies may qualify once they’re converted into permanent coverage, since only permanent policies have transferable ownership and cash value for settlement purposes.
What happens to my policy after I sell it?
After the sale, the buyer becomes the new policy owner, assumes responsibility for premium payments, and receives the death benefit when the insured passes away.
