What is 'Viatical Settlement'

A viatical settlement is an arrangement in which someone with a terminal disease sells his or her life insurance policy at a discount from its face value for ready cash. The buyer cashes in the full amount of the policy when the original owner dies. A viatical settlement is also referred to as a life settlement.

BREAKING DOWN 'Viatical Settlement'

A viatical settlement is extremely risky. The rate of return is unknown because it's impossible to know when someone will die.

If you invest in a viatical settlement, you are basically speculating on death. Therefore, the longer the life expectancy, the cheaper the policy. However, because of the time value of money, the longer the person lives, the lower your return. This is undoubtedly one of the more morbid investments someone can buy.

Individuals not facing a health crisis may also choose sell their life insurance policies to get cash in a viatical settlement. If a life insurance policyholder is considering this option, they should first consider all available options for obtaining the needed cash. There might be a better way to utilize a life insurance policy. For instance, a life insurance policyholder may be able to access some of the cash value to meet their immediate needs while keeping the policy in force for beneficiaries. It might also be possible to use the cash value as security for a loan from a financial institution. 

An accelerated death benefit is also an option. An accelerated death benefit usually pays some of a policy’s death benefit before the insured dies. This could provide the needed cash without selling the policy to a third party. 

Points to Consider About Viatical Settlements 

  • It's important to get quotes from several companies to ensure a competitive offer. 
  • Not all proceeds received from the sale of a life insurance policy are tax free; make sure you understand all tax implications of a viatical settlement.
  • Find out if any creditors could claim your cash settlement. 
  • Understand the implications on any public assistance that may be relevant, such as food stamps or Medicaid. 
  • The buyer of a viatical settlement is allowed to check on your health condition periodically. Make sure you understand who will get access to this information. 
  • All questions on an application form must be answered truthfully and completely – especially questions about medical history.
  • Make sure the viatical settlement provider deposits funds into an independent escrow account to protect the funds during the transfer. 
  • Find out if returning the money is an option in the event of seller's remorse.
RELATED TERMS
  1. Viatication

    Viatication is the selling of a life insurance policy by a terminally ...
  2. Death Bond

    A death bond is a security derived by pooling together transferable ...
  3. Buyout Settlement Clause

    A buyout settlement clause is an insurance contract provision ...
  4. Loss Settlement Amount

    Loss settlement amount is a term used to denote the amount of ...
  5. Settlement Period

    A settlement period is the time between the settlement date and ...
  6. Clean Sheeting

    Clean Sheeting is the fraudulent act of purchasing a life insurance ...
Related Articles
  1. Insurance

    Life Insurance: Foundation to a Solid Portfolio

    Life insurance should be a foundation of an overall financial portfolio. Here's why.
  2. Insurance

    How to Pick the Right Life Insurance Plan

    Finding the right life insurance policy - if you need one at all - can be more challenging than it seems. Use this guide to find the right one for you.
  3. Insurance

    Understanding Taxes on Life Insurance Premiums

    Learn about the tax implications of life insurance premiums, including when they might be taxable and whether they are tax deductible.
  4. Insurance

    How Much Life Insurance Should You Carry?

    Before purchasing life insurance it is important to decide if you really need it, what type of policy is best, and how much coverage you should get.
  5. Managing Wealth

    Life Insurance With an Increasing Death Benefit

    Why buy a life insurance policy with an increasing rather than level death benefit
  6. Insurance

    How Life Insurance Can Provide Retirement Income

    Universal life insurance can generate tax-free retirement income. Here's how.
  7. Insurance

    The Best Type Of Life Insurance For You Right Now

    Different stages of life call for different amounts of life insurance coverage. Find out what you need, when and why.
  8. Insurance

    How Good of an Investment Is Life Insurance?

    Compared to other options, does it ever make sense to include cash-value life insurance in your investment portfolio? A look at the pros and cons.
  9. Insurance

    5 Mistakes That Can Ruin Your Life (Insurance)

    There are many reasons why it's important to have the right amount life insurance. Don't let these simple errors leave you unprotected.
Hot Definitions
  1. Portfolio

    A portfolio is a grouping of financial assets such as stocks, bonds and cash equivalents, also their mutual, exchange-traded ...
  2. Gross Profit

    Gross profit is the profit a company makes after deducting the costs of making and selling its products, or the costs of ...
  3. Diversification

    Diversification is the strategy of investing in a variety of securities in order to lower the risk involved with putting ...
  4. Intrinsic Value

    Intrinsic value is the perceived or calculated value of a company, including tangible and intangible factors, and may differ ...
  5. Current Assets

    Current assets is a balance sheet item that represents the value of all assets that can reasonably expected to be converted ...
  6. Volatility

    Volatility measures how much the price of a security, derivative, or index fluctuates.
Trading Center