Your Guide to Viatical Settlements

Clock January 13, 2022

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Being diagnosed with a life-threatening illness is challenging. While there is so much to think about and plan, finances are usually of top concern. Often, those diagnosed with diseases such as cancer, ALS, or Alzheimer’s require immediate care and assistance, more than their health insurance will cover or that they can afford.

Fortunately, there may be money available from life insurance in the form of a viatical settlement that could provide immediate financial assistance.

A senior couple discussing viatical settlements

If you or a loved one is terminally or chronically ill, a viatical settlement might be a viable option for you. In this guide, find everything you need to know about viatical settlements including how they differ from other options, who is eligible, and what the process looks like.

What is a viatical settlement?

A viatical settlement is the sale of a life insurance policy for its market value for a policyholder who is either chronically or terminally ill. Similar to a life settlement transaction, a viatical settlement provides the policyholder with a lump sum of cash that is usually four or more times greater than the policy’s cash surrender value but less than its face value.

After purchase, the third-party buyer takes over all premium payments and becomes the beneficiary.

Are all policies eligible for a viatical settlement?

A viatical settlement provides financial relief to those facing extreme medical conditions or hardship as a result of a life-threatening illness. For your policy to be eligible, it should meet the following criteria:

  • Permanent vs. Term Life Insurance – Most policies that qualify for a viatical settlement are permanent policies – either whole or universal life. However in some instances, both convertible and non-convertible term policies may qualify.
  • Short Life Expectancy – The policyholder must have a chronic or terminal illness that results in a shortened life expectancy. A policyholder needs to provide medical records and documentation to the settlement company as proof.
  • Policy Age – The policy must be at least two years old in order to qualify. Ideally, the policyholder will have held the policy for well over two years as older policies tend to result in higher payouts.
  • Policy Value – The face value of the policy must generally be at least $100,000.

Viatical Settlement vs. Life Settlement

While life settlements and viatical settlements are very similar, there are a few distinct differences in these transactions.

  • First, life settlements are typically open to people over the age of 65 while viatical settlements are only available to individuals who have been diagnosed by a physician as chronically or terminally ill. This includes diseases such as cancer, Alzheimer’s, ALS, dementia, and advanced heart or kidney disease.
  • Second, viatical settlements are likely to have a much larger payout (as a percentage of the policy face value) than life settlements. This larger sum is due to fewer unforeseen costs for the purchaser and can help the policyholder cover any urgent medical expenses.
  • Finally, in most cases the payout from a viatical settlement is not subject to federal income tax. You can keep the full cash payout. Alternatively, you must report payout from a life settlement as income on your tax return. Of course, this should not be considered tax advice and you should always consult a professional before making your decision.

What about an Accelerated Death Benefit?

An accelerated death benefit (ADB) is when an insurance company pays a policyholder a portion of the death benefit while they’re still alive if they have a terminal illness. This is an option through the insurance company, although not all policies offer it. You’ll need to contact your insurance company to know for sure.

Is this the better option for you? The answer depends on your unique situation.

It might turn out that an accelerated death benefit is the best option for your needs. But it is important to research this option fully, as there are consequences that apply to this as well. For example, the amount of the death benefit could be taxed or you might not qualify for Medicaid or other benefits.

Pros & Cons of Viatical Settlements

Viatical settlements can be of great assistance in times of need, but they are not the best fit for everyone. There are benefits and consequences to viatical settlements. Explore these to determine if the pros may outweigh the cons in your family’s unique situations.

Here are some benefits you need to know:

  • A lump sum of cash will be given to you.
  • You can use the money to cover medical bills.
  • You can use the cash to pay for anything you want or need.
  • You no longer have to pay your premium payments.
  • Viatical settlements are not taxed by the IRS.

Along with the benefits, here are some consequences to keep in mind:

  • You might not qualify for Medicaid.
  • Your beneficiaries might not receive any money from the policy when you pass away.
  • Certain states don’t recognize the difference between viatical settlements and life settlements. This is why it’s important to speak with a licensed life settlement company that knows the different regulations, tax laws, and how they vary by state.

What can I expect from the selling process?

Our goal is to give everyone who works with Lighthouse Life a customer experience worthy of a 5-star review. To help deliver on this goal, we do our very best to make every interaction fast, easy, and stress-free. You deserve, and we deliver, a process that puts your rights and needs first from the start.

Once you complete the initial pre-qualication form, here are three steps you can expect with Lighthouse Life:

Step 1: You get a phone call.

Choose a time and date that works for you, and we’ll talk to you about your health and policy. If you qualify, we will send you some documents to review and sign (this can usually be done electronically), and we will begin requesting information from your insurance company and medical providers on your behalf. We make it easy for you.

Step 2: You receive the offer.

We’ll send you the appraisal and offer to purchase your policy. This step usually takes a few weeks, but can happen in as few as five days of the initial phone call. We value your time.

Step 3: We complete the viatical settlement.

The final step involves your acceptance of the offer.

If you accept, we’ll send you the necessary paperwork. Once the paperwork is received and the insurance company changes the ownership, you will receive the money.

Are you looking to explore a viatical settlement?

Now that you’re more familiar with the viatical settlement process, you’re prepared to navigate a life settlement yourself. But you don’t have to navigate it alone. Lighthouse Life has the tools to steer you in the right direction and towards the best possible payout. Sometimes that is a viatical settlement with our company, sometimes it is the accelerated death benefit, and sometimes it is maintaining the policy as-is. We want to make sure you understand your options and do what is best for you and your loved ones. We offer standard and viatical life settlements to qualified policyholders, and strive to assist them as they search for the best option in a difficult time.

Use our life settlement estimate calculator today to find out if you may qualify to sell your policy through a life settlement or viatical settlement. The estimate calculator is simple to use and comes with no commitments. If you have any questions, our team is here to help you through chat, email, or phone.

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