What Is a Viator?
A viator is a person who has been diagnosed with a terminal or life-threatening illness and decides to sell their life insurance policy. In doing so, viators receive a portion of the death benefits while they are still alive.
Often, viators are motivated by the desire to fund costly or experimental therapies that might prolong their life. If these therapies are not included in their insurance coverage, they may need to sell their policy in order to afford the treatments out of pocket.
- A viator is a life insurance policyholder who decides to receive a portion of their death benefit while they are still alive.
- In doing so, they must rely on a third-party willing to purchase their policy.
- The counterparty is then responsible for paying the monthly premiums associated with the policy. In exchange, they receive the policy’s death benefit once the viator passes away.
In some cases, a life insurance policyholder may not be satisfied with the extent of the coverage they receive from their insurance provider. For example, a person suffering from an expensive illness may feel that their provider is only covering basic treatment options, and failing to take advantage of newer or more experimental treatments that might reduce their symptoms or even extend their lifespan. In that situation, the policyholder may wish to take their treatments into their own hands, by forfeiting their life insurance policy in favor of a lump sum which they can spend on their own medical expenses.
To accomplish this goal, viators need to find a counterparty—known as a viatical settlement provider (VSP)—who is willing to purchase their life insurance policy. In order to generate a profit, the VSP purchases the life insurance policy at a discount, paying the viator less than its face value. The VSP is then responsible for the premium payments associated with the life insurance policy for the duration of the viator’s life. Upon the death of the viator, the VSP then receives the full death benefit of the insurance policy.
Viatical settlements are not without risk. After all, a viator may experience remission or take advantage of an experimental procedure that prolongs their life or cures them completely. In that situation, the VSP may be responsible for many more years of premium payments than they had budgeted for, reducing their eventual profit on the transaction and potentially leaving them with an overall loss. Because of this, some VSPs will purchase policies from multiple viators at once in order to have policies paying out at different times, offsetting their risks.
Real World Example of a Viator
Ted Smith was recently told that his cancer prognosis has worsened, and that he has only six months to live. When Ted’s children were younger and still lived at home, he took out a life insurance policy so that his family would be taken care of if something should happen to him. Over the years, his business and investments did well, and he was able to save up a substantial amount. Because of this, he is now financially secure, and his family will not need to rely on a life insurance payout in order to be well-cared for after his death.
With this in mind, Ted decides to try an experimental procedure that he heard is having great success in curing cancers like the one that he has been diagnosed with. After raising this issue with this insurance provider, however, he is told that they are not willing to cover this expensive new procedure. For this reason, Ted decides to sell his life insurance policy and become a viator.
Ted seeks out a viatical settlement provider and together they negotiate a settlement on the policy. As a policy holder, Ted’s wife would have received a payout of $500,000 upon his death. Now, Ted is selling the policy to the VSP for $250,000. Ted will receive approximately 50 percent of what his original payout would have been and the VSP will make a profit of $250,000, minus any monthly premiums that are made up until the time of Ted’s death.
Thankfully, the treatment Ted obtained works as intended, and his cancer goes into remission. The VSP is now responsible for making the monthly premium payments on the policy for the remainder of Ted's life, which could be many years from now, reducing the VSP’s estimated profit from the transaction.