DEFINITION of 'Viator'
A viator is a person with a terminal or life-threatening illness who sells his life insurance policy at a steep discount to pay for health-care costs or improve quality of life. The person or entity who purchases the policy takes over the premium payments for the remainder of the victor's life and usually receives a percentage of the policy's face value, around 50-70%, in a cash payment. Upon the viator's death, the third party who purchased the policy receives the full death benefit.
BREAKING DOWN 'Viator'
A person may choose to become a viator if he is diagnosed with an incurable illness and determines his beneficiaries no longer need the death benefit of his policy, and that he can put the money to better use while still alive, such as paying for medical treatments. The percentage of the death benefit received by the viator is negotiable. Factors that influence how much he receives include his estimated remaining lifespan and the policy's premium costs. A viator with longer to live receives a lower percentage of the policy's face value than one expected to pass away within weeks or months.
How the Process Works
Suppose a person receives a medical diagnosis that concludes he has only six months to a year to live. He has a life insurance policy worth $1 million that he took out when his children were minors, but they are now grown and self-sufficient. They no longer risk being destitute without his income. The insured decides he has a greater need for the money while he is still alive than his children do after he dies. He seeks out a third party to take over the rights to the policy in exchange for an up-front payment that represents a percentage of the death benefit.
The third party reviews the insured's diagnosis and the policy itself and presents an offer to pay $600,000 for the rights to the policy. The insured receives the money in a lump sum. The third party takes over paying the policy's premiums and receives the full $1 million death benefit when the insured dies.
Viatical settlements are controversial and can be fraught with risk. The third party has a financial interest in the insured dying as quickly as possible, since it receives its money faster and does not have to make as many premium payments. On rare occasion, a person diagnosed with a terminal illness is miraculously cured, perhaps because a medical advancement emerges at just the right time. In this scenario, the third party is stuck with a policy that might not pay a benefit for decades to come.