People buy life coverage to help out their families when they die. With rising life expectancy rates this often means that their family won't actually need the financial help when it comes around. But, those diagnosed with a terminal illness or a condition that will shorten their life expectancy could often use this money themselves. They may have an increase in medical expenses or may simply want to do something that they have always wanted to do. Selling their life coverage as a viatical settlement may be a solution worth considering.
What is a Viatical Settlement?
Selling and buying life insurance policies and annuities happens a lot in the financial sector. This can work in various ways. A viatical settlement is simply one option. Here, a broker or a settlements firm will arrange to buy a life policy from its owner for cash.
An individual will only qualify for a viatical life settlement if they have been diagnosed with a terminal or critical illness that will affect their life expectancy. The aim here is to cash in on their policy to release funds that they can use now when they may need it most. If a policy holder has no dependents or their family is financially independent then they may opt to do this so that they themselves can benefit from the money.
What Does the Viatical Life Settlement Company do?
Individuals looking at taking this solution can deal with a settlement broker or with a firm directly. The company that will buy the policy will be able to advise on whether it can be sold on to another party in the first place and on any implications that may arise.
If the individual can/wants to then sell their policy they will be given a quoted value. The sum they are given here will be theirs to keep even if they survive their stated life expectancy. The policy then generally ceases to be their property and passes on the individual/company that purchased it. When the individual dies, the company then gets the life benefits. Any heirs to the individual's estate will have their rights to claim waived and the new policy holder will become its beneficiary.
What are the Alternatives to a Viatical Settlement?
Before entering in to this kind of deal individuals would be wise to investigate all of their options. Alternatives could include:
- Accelerated Benefits: some life policies will allow some cash to be released to the holder in the event of a terminal illness.
- Policy Surrender: in some cases a policy holder may opt to surrender (i.e. give up) their policy for a cash payment from their insurer.
- Regular Settlement: older people that don't qualify here could also consider a standard settlement deal.
- Loans: some people will use their insurance policy as surety against a loan.
All of these cases, as well as the viatical settlement solution, need thinking about. Comparing options to see which will bring in the highest quotes may well be useful. It may also be important to make sure that any advice is taken from a licensed specialist in this field.