insurance policy

Understanding Viatical Settlements

If you’ve never heard the term viatical settlement, you’re not alone. Most life insurance policyholders are unaware that there is a well-established option for cashing out on a policy when the patient receives a terminal diagnosis. It is meant to ease the financial burden on the patient during their final months of life, allowing them the freedom to pay hospital bills, debts, and daily expenses, as well as allow the holder to spend more time with friends and family and accomplish anything else they wish before passing on.

Purpose

When a terminal diagnosis is received, it may become pointless to continue paying into a life insurance policy, as neither you nor your beneficiaries will gain any benefits upon your death. The money that you have already paid into your policy may be put to better use while you are still alive so that you can prevent any financial burdens on your beneficiaries once you pass. Your diagnosis could also mean you will be unable to accomplish your bucket list items unless you have the financial means to accomplish them while you are still physically able. A viatical settlement allows you to sell your policy to a third party, with the help of a viatical company, who will then continue to pay your premiums until you pass away. In the meantime, you will receive a lump sum that, while less than the full value of your policy, can be enough to help you enjoy your remaining days. When you pass away, your policy’s buyer can cash out on your benefits.

Qualifications

All types of life insurance, including whole, term, group, and universal, are eligible to be sold as a viatical settlement. A policyholder can be of any age so long as they hold policy, and their diagnosis is not limited to any specific disease. In general, the holder should have received a terminal diagnosis and given up to 24 months to live. Individual insurance companies will have other specific qualifications that the holder must meet, but the purpose of this type of settlement is to ease the financial burden during an extremely difficult time, not add to it, so the process tends to be relatively simple to ensure the holder receives their cash as quickly as possible.

Risks

As the original policyholder, the risks for selling your policy are fairly minimal. The burden of finding a buyer falls on a viatical company, so you are only responsible for sharing your medical and existing policy information. Remember that you will be paid less than the total value of the policy, and you will not be eligible for any additional funds paid into the policy once it is sold. The buyer will purchase your policy for less than the death benefit, and they can cash out that benefit once you pass away. If you outlive the timeline provided in the diagnosis, the buyer may receive a lower return. The buyer is, therefore, the one taking on the risk, as they are purchasing your policy as an investment.

Receiving a terminal diagnosis is never easy for you or your loved ones. Knowing there are options to help ease the financial burden can help make a painful time a bit easier to manage.

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