What is a viatical settlement in life insurance?

What is a viatical settlement in life insurance?

A viatical settlement allows you to invest in another person’s life insurance policy. With a viatical settlement, you purchase the policy (or part of it) at a price that is less than the death benefit of the policy. When the seller dies, you collect the death benefit.

What happens in a viatical settlement?

A viatical settlement is the sale of a life insurance policy to a third party. The buyer (the viatical settlement provider) becomes the new owner of the life insurance policy, pays future premiums, and collects the death benefit when the insured dies.

Who would use a viatical settlement?

Who Qualifies for a Viatical Settlement? Life insurance policyholders who are seriously or chronically ill, have a policy with a face value of a minimum of $100,000, and have held their policy for at least two years will typically qualify for a viatical settlement.

Is a viatical settlement the same as a life settlement?

Life settlements are also typically for people above 65 years old, whereas a viatical settlement is designed to provide a relief option for a person of any age facing extreme medical circumstances.

What does viatical mean in English?

viatical. / (vaɪˈætɪkəl) / adjective. of or denoting a road or a journey. botany (of a plant) growing by the side of a road.

What is the primary feature of a viatical settlement?

(The primary feature of a viatical settlement is the prepayment of a reduced death benefit.)

How much is normally paid to a policy owner in a life viatical settlement?

In a viatical settlement, a company buys the terminally ill policyholder’s life insurance policy, paying the policyholder 55 to 80 percent, typically, of the death benefit. The viatical company becomes the policy’s beneficiary, and receives the full death benefit when the insured person dies.

What is the meaning of viatical?

adjective. of or relating to a viaticum. of or relating to a financial transaction in which a company buys life insurance policies from the terminally ill at less than their face value and may sell the policies to investors: viatical settlements.

What does the word viatical settlement mean?

A viatical settlement is an arrangement in which someone who is terminally or chronically ill sells their life insurance policy at a discount from its face value for ready cash. The buyer of a viatical settlement pays the seller a lump sum cash payout and pays all future premiums left on the life insurance policy.

Is a viatical settlement taxable?

Most of the time, viatical settlements are not taxable. Settlement proceeds for terminally ill insureds are considered an advance of the life insurance benefit. Life insurance benefits are tax-free, and so it follows that the viatical settlement wouldn’t be taxed, either.

Are viatical settlements legal?

Viatical settlements are almost entirely unregulated at this time. While a few states currently have loosely defined insurance laws designed to protect viators, no state or federal securities laws currently exist to protect investors.

Are viatical settlements securities?

Are viatical settlements considered to be securities? The Washington Securities Division examines all viatical settlement investments on a case-by-case basis. It has been our experience that these investments are often securities under the Securities Act of Washington.

How does a viatical differ from a life settlement?

A viatical settlement specifically involves the sale of life insurance where the policyowner is terminally or chronically ill. A life settlement, on the other hand, is the sale of life insurance to a third party when the insured does not have a terminal or chronic diagnosis. Life settlements are only available to insureds who are at least 65 years old, but the insured’s age is less relevant in a viatical settlement.

What is a settlement option in life insurance?

Life Insurance Settlement Options. A settlement is the way in which your life insurance policy proceeds are paid out. There are many life insurance settlement options that can be confusing at first; your policy may pay out a lump-sum cash payment, life income, a fixed amount, or interest paid periodically.

What does a viatical settlement provider do?

A viatical settlement provider is a party who exchanges something of value to a person with a life insurance policy in order to obtain the right to the death benefits of the life insurance policy. It is common for a sum of cash to be exchanged to the life insurance policy holder for the rights to the death benefits.

What does viatical settlement mean?

Financial Definition of viatical settlement. A viatical settlement occurs when a person who is chronically or terminally ill sells his or her whole or universal life insurance policy to a third party that maintains the premium payments and receives the death benefit when the insured dies.