LIFE SETTLEMENTS OR VIATICAL SETTLEMENTS
Life Settlements or Viatical settlements: when an individual sells their Life Insurance Policy to a 3rd party investor and is able to receive Life Insurance benefits before death. This is often used for seniors or terminally ill and allows the insured to collect a large portion of benefits in order to help pay healthcare or personal debts before death.
A Life Settlement is a transaction where the policy owner sells their policy to a third party investor in exchange for a lump-sum payment. The life settlement investor is usually a corporate investor (from a life settlement company) or can be an individual investor. Most Life settlements are used in the case of the terminally ill or senior citizens who require additional care, however even healthy people with a life insurance policy can benefit from a life settlement agreement. In this transaction the policy owner or insured is essentially borrowing against their life insurance policy.
A life settlement involves the policy holder and third party investor reaching an agreement for the insured to receive a sum of money from the investor. This sum of money is usually a percentage of the actual life insurance policies worth. The third party investor then assumes the financial responsibility of payments to the original life insurance company until the insured dies. The proceeds of the original life insurance policy are then paid to the investor for a profit over what was lent or paid out.
Life settlements are transactions that should be taking very seriously as they will financially affect a person’s legacy. The life settlement option should only be utilized when circumstances are so extreme that larger amounts of cash are needed immediately. Another less extreme option is to have a life insurance policy that includes something called accelerated benefits. Accelerated benefits are when the life insurance company makes payments to a terminally ill policy holder prior to their death without involving a third party investor. This option is offered when applying for a new policy or can be added to an existing policy via rider. Additionally one should keep in mind that accelerated benefits as well as life settlements will affect eligibility for any federally funded programs (e.g. Medicaid).
Some things to keep in mind when considering Life Settlements are, picking a reputable third party investor, researching and looking at more than one third party investor to compare price arrangements and research whether or not complaints have ever been registered against the investor you are considering using. It’s also important to note that a life settlement company will usually take into account your life expectancy when paying a percent of your original policy. If your life expectancy is several months as opposed to several years you would get a much larger percentage of the original face value of your policy. In addition it is also important to remember that your beneficiary at the time of your death will not receive any financial benefit upon your death.
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