What is a Viatical Settlement?
A viatical settlement is a form of life settlement that is specifically for individuals suffering from a terminal illness. The transaction can typically be done tax-free, so long as the insured meets certain criteria as stated by a medical professional.
Over the past decade, the viatical settlement market has become incredibly well regulated. The entire insurance market is regulated on a state-by-state basis instead of nationally. Therefore, the responsibility falls on each state’s government to make sure that companies are behaving ethically. The majority of states do require specific licensing and practice strict oversight to ensure customer safety. Here at Abacus, we are proud to share that we are licensed for life and viatical settlements in many different states and have a long business history without a single regulatory issue.
Whoever you choose to work with, you should make sure they follow the correct guidelines; there are still some companies in the industry who do not operate under the appropriate licensure.
How Does a Viatical Settlement Differ from a Life Settlement?
At its core, a viatical settlement is essentially the same as a life settlement; with the major caveat being the insured is typically suffering from a terminal illness and has a life expectancy of less than two years.
There are some other slight variations between the two. Below, you can see a comparison of the types of settlement.
- The insured is terminally/chronically ill.
- The proceeds typically range from 50% to 80% of the death benefit.
- The IRS allows proceeds to be received as a tax-free gain so long as the insured meets certain criteria as stated by a medical professional.
- The insured is typically a senior in their late 70s.
- The proceeds are usually around 10% to 80% of the death benefit, depending on life expectancy.
- The funds are normally subject to taxation unless they meet IRS guidelines.
When is the Right Time to Pursue a Viatical Settlement?
For many individuals facing a terminal illness, a viatical settlement can be a strong financial solution. Patients and their families can receive immediate funds to pay for medical care or quality of life experiences. We commonly see clients use their funds to tackle their “bucket-lists.” Many insured want to be able to see their family enjoy their life insurance money now, rather than not being present to share in their happiness.
Coping with a medical crisis while still worrying about medical bills works against the goals of palliative care and hospice. With the cost of healthcare continuing to rise, even those with excellent health insurance are struggling to keep up with medical expenses. Viatical settlements can provide an inflow of funds which can be used to pay off bills or fund experimental/alternative treatments that may not be covered under insurance.
If you are struggling with medical bills, having an issue keeping up with your premiums, or just want immediate income, a viatical settlement could be right for you. We at Abacus advise that anyone considering a settlement take a close look at their life insurance and financial situation to make sure they are making the correct choice for them and their family. If you do not have an immediate need for a lump sum of cash, we suggest not seeking a life settlement as realistically, the greatest payout you can receive is the death benefit.
In contrast, if you are considering letting your policy lapse or surrendering it, contact us first. Your insurance company may be trying to offer you less than your policy is worth and Abacus wants to help you get the most out your policy.
A Success Story
Diane was diagnosed with stage IV cancer. Realizing the immediate need for financial assistance to pay for treatment, Abacus was able to close the case in exactly 30 days. Diane received a lump sum of $201,000 and was able to secure important medical care right away.
Financial Aspects of a Viatical Settlement
A viatical settlement is a financial transaction between you (policyholder) and a licensed provider. The provider and policyholder are the only two parties mandatory for a viatical settlement to occur; meaning that working directly with a provider is the best way to maximize your settlement value. In contrast, you could choose to work through an intermediary or broker who would handle all the intricacies of the settlement for you. However, these intermediaries can often take up to 30% of your settlement value. In addition, the marketing companies that the intermediaries work with may also take a share.
What many consumers don’t realize is that a life insurance policy is considered personal property, meaning it is able to be bought, sold, and traded just like any other high-value financial asset. The proceeds from the sale of a life insurance policy can be as high as 80% of the face value, completely tax-free. Rather than selling your home or other personal belongings to afford your medical bills or fund your “bucket list” plans, you may be able to sell your life insurance policy.
A viatical settlement can be an extremely viable and beneficial solution for those who qualify. At Abacus, we pride ourselves on providing clients with a quick and seamless settlement process to ensure terminally ill policyholders receive the funds they desperately need as fast as possible.
The First Step
If you’re interested in pursuing a viatical or life settlement with Abacus, we encourage you to pre-qualify your life insurance policy using our confidential Online Qualification Tool. If you have a question about life settlements or prefer to speak with one of our representatives, call us at 1-(800) 561-4148.