Viatication

Definition of 'Viatication'

The selling of a life insurance policy by a terminally ill person, so that person can receive a benefit from the policy while still alive and the purchaser of the policy can receive a payment when the seller dies.

Though viatication may seem quite morbid, it does benefit both the buyer and the seller. The purchaser pays the seller less than the full benefit of the policy in order to earn a return on the investment. The seller uses the proceeds to pay for medical treatments and/or improve quality of life while he or she is still alive when other sources of funds are exhausted. Viatication, also called a viatical settlement or life settlement, can also be used when the policyholder no longer wants the life insurance policy for any reason, even if he or she is not terminally ill.

Investopedia explains 'Viatication'

The downsides of viatication for the policy holder are that he or she will not receive the full value of the policy and his or her beneficiaries will no longer receive the policy proceeds unless there happens to still be money left over from the viatical settlement when the policyholder dies. Thus, viatication somewhat defeats the original purpose of purchasing life insurance, but it does offer flexibility in determining how the policy proceeds will be used. An alternative to viatication is to borrow against the cash value of a permanent life insurance policy (this option is not available with term life insurance, however).