When you are faced with a cancer diagnosis or other terminal illness, it can turn your life completely upside down. A serious diagnosis and a grim prognosis could leave you and your family devastated. Aside from having your life thrown into turmoil, your finances could also be in question as well. In times like these, some turn to viatical settlements for financial relief. If you have a life insurance policy, you might be unaware of options for getting money out of your policy.
A settlement affords someone who is terminally or chronically ill the ability to sell their life insurance policy to a third party. The seller receives a cash payout that is generally larger than the cash surrender value, but less than the death benefit. The buyer becomes the beneficiary on policy and receives the death benefit when the seller passes. There are many companies such as American Life Fund that offer viatical settlement opportunities to terminally ill patients. Let’s take a look at what you need to know about viatical settlements.
What is a Viatical Settlement?
A viatical settlement is a way for people with terminal illnesses, such as cancer patients, to cash out on either all or part of their life insurance policy. A person with a terminal or chronic illness that affects daily life, and a current life insurance policy could qualify for a viatical settlement. To qualify, the patient usually needs to have a life expectancy of 24 months or less.
The settlement provider assumes ownership of the policy and is responsible for paying all remaining premiums. The provider will receive the full policy benefit once it matures. A settlement provider can buy a portion of the policy and becomes responsible for a portion of the premiums or they can buy out the entire policy. In the United States, the money received from a viatical settlement is usually free of any federal tax but may be subject to some specific state or local regulations.
The harsh reality of these settlements is that the shorter your life expectancy is, usually, the more valuable your life insurance policy might be. Policies such as whole, term, universal, or group life insurance are acceptable as part of a viatical settlement agreement. Doing some research will allow you to explore all of your options for a settlement.
Why consider a viatical settlement?
Many people with severe medical conditions will need expensive medical treatments and medications. Unfortunately, health insurance doesn’t always provide full coverage for expensive treatments and patients can be left with large bills. For this reason, many people in this situation will opt for a settlement to help cover medical or end-of-life expenses such as a home health aide. The cash payout can help terminal patients take care of medical bills so that they aren’t left for family members after they pass away.
Aside from medical expenses, there are several other reasons why someone might choose to sell their life insurance policy after a terminal diagnosis. Illness and treatment might limit your ability to maintain other financial commitments. A viatical settlement, could provide a cash payout and relieve you of expensive insurance policy premiums.
Additionally, you may no longer need a life insurance policy as your beneficiaries have become financially independent. If there will be no mortgage or dependent concerns after you pass away, there might not be a need for a death benefit.
Also, if your term policy is nearing expiration, you could consider converting it to a permanent plan and then sell it to a settlement provider. When a term policy expires, there is no cash value, and renewing it could be expensive.
If you feel that a viatical settlement is right for you, the first step is to do your research. You will want to contact settlement providers or brokers and explore all of your options. It might also be beneficial to contact a financial service provider to determine how the money could impact your finances. Taking a settlement for a life insurance policy can be helpful for many people, but it isn’t a decision that should be hasty.