Viatical settlements allow you to benefit from the value of your life insurance policy before you pass. In this article, we will go over the basics of viatical settlements to help you determine if using one is right for you.
What is a Viatical Settlement?
Viatical settlements are a type of investment. They allow someone with a terminal/chronic illness to receive cash for their life insurance policy while they are still alive. The buyer in a viatical settlement becomes the owner of the insurance policy. The seller continues to be insured. When the seller passes, the buyer can cash the policy in for its face value. However, upon sale, the seller will receive only a portion of the cash value.
Reasons for Utilizing One
Everyone has different reasons for utilizing viatical settlements. Some of the reasons for deciding to enter one include:
- You no longer can afford to pay your premiums. With a viatical settlement, you can get some money from your policy instead of letting it lapse due to non-payment of premiums.
- If your term policy is close to expiring, you can convert it to a permanent plan and sell it. As opposed to just letting it expire worthless.
- The main reason for utilizing a viatical settlement is you need additional funds. Some people need the money to pay medical bills others need it to help improve their quality of life if they are unable to work due to illness.
Pros and Cons
Like any type of investment, there are pros and cons to viatical settlements. The benefits include:
- You can receive a lump sum of money that would be more than the surrender value of your policy if your policy even has one.
- After you sell your policy you will no longer need to make premium payments, the buyer will take them over.
- You will have an infusion of cash to help you cover costs.
Some of the cons include:
- Your beneficiaries will not receive anything from your life insurance policy after you pass, the buyer will receive the full death benefit.
- The payout may make you ineligible for Medicaid or other government benefits.
- You may be subject to state taxation on the settlement payout.
Before You Purchase
Before you decide to enter into a viatical settlement, there are some points you should carefully consider. First, if you receive any type of government assistance, you will want to make sure you fully understand the effect that the money will have on such benefits. Additionally, if you have outstanding creditors you should make sure that they will not be able to seize your new assets. As part of the viatical settlement process, the buyer will have access to certain information about your health condition. It is important that you are aware of the extent of the information they will have access to and who will be able to see it. Lastly, you want to make sure the company you are working with will deposit your settlement funds into an escrow account to protect you during the transfer.
Where to Look for Help
If you are interested in utilizing a viatical settlement you will want to contact a broker who can help to facilitate the transfer. Do your research and make sure you choose a reputable company as your facilitator.
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