Viator

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.

Potential Complications

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.

RELATED TERMS
  1. Acceleration Life Insurance

    A type of policy that pays a portion (typically 25\% or 50\%) ...
  2. Accelerated Benefits

    A clause in certain life insurance policies that enables the ...
  3. Life Settlement

    The selling of one's life insurance policy to a third party for ...
  4. Accelerated Death Benefit - ADB

    A benefit that can be attached to a life insurance policy that ...
  5. Level Death Benefit

    A life insurance payout that is the same whether the insured ...
  6. Guaranteed Issue Life Insurance ...

    A type of financial-protection policy that provides cash to a ...
Related Articles
  1. Financial Advisor

    Advising FAs: Explaining Life Insurance to a Client

    Life insurance was initially designed to protect the income of families, particularly young families in the wealth accumulation phase, in the event of the head of household's death.
  2. Managing Wealth

    Life Insurance With an Increasing Death Benefit

    Why buy a life insurance policy with an increasing rather than level death benefit
  3. Financial Advisor

    Whole or Term Life Insurance: Which Is Better?

    Learn the difference between term life insurance and whole life insurance. Understand when it is beneficial to buy each type of life insurance.
  4. Trading

    Making A Living On Death Bonds

    Find out if these macabre bonds are just the new blood your portfolio needs.
  5. Personal Finance

    Getting Life Insurance in Your 20s Pays Off

    Find out how Americans in their 20s can benefit from a well-thought-out life insurance policy, especially if they are able to build cash value for retirement.
  6. Trading

    Critical Illness Insurance: Get Paid If You Get Sick

    This coverage will allow you to focus your attention on getting well, rather than getting by.
  7. Trading

    Profit From Unwanted Life Policies With Life Settlement

    With a life settlement you could cash in on your policy money now.
  8. Managing Wealth

    How Survivorship Life Insurance Works

    Should you buy a survivorship life insurance policy?
  9. Personal Finance

    What's Better: Whole Life or Term Insurance?

    Life insurance can be a difficult decision to make, especially for a young adult. Here's a look at the benefits and costs of getting whole life insurance.
  10. Retirement

    Why the Wealthy Should Buy Lots of Life Insurance

    Wealthy clients have an enviable problem — managing, preserving and growing wealth. Properly structured life insurance can help with these goals.
RELATED FAQS
  1. What is the difference between the death benefit and cash value of an insurance policy?

    Understand the difference between the various components of a life insurance policy including the death benefit and a policy's ... Read Answer >>
  2. How can I borrow money from my life insurance policy?

  3. How do I borrow money from my life insurance?

    Hello, I would like to find out the steps I need to take towards borrowing money off my life insurance. ... Read Answer >>
  4. Do beneficiaries pay taxes on life insurance?

  5. What is the difference between term and universal life insurance?

    Term life insurance is the most basic of insurance policies. It is nothing more than an insurance policy that provides protection ... Read Answer >>
  6. What is term insurance?

    Term insurance is a type of life insurance policy that provides coverage for a certain period of time, or a specified "term" ... Read Answer >>
Trading Center