Life Settlement is usually the only term that come to the mind of people when we talk about settlements pertaining to life insurance. However, there’s a relatively lesser known term called ‘viatical settlements’ that people can opt for.
Viatical settlements are meant for a different purpose and have a different set of criteria. If you fulfill all those criteria, you are eligible to go for a viatical settlement instead of a life settlement; which is why a sound knowledge about viatical settlements is essential. Here’s everything you need to know about viatical settlements.
What are viatical settlements?
Pretty much like a life settlement, people sell their life insurance for a viatical settlement as well. However, in a viatical settlement, a person who suffers from a terminal illness sells his life insurance policy. The policy is sold at a discounted price for ready cash. As the owner of the life insurance policy dies, the buyer gets to cash in the entire amount of the life insurance policy.
Eligibility criteria to qualify for a viatical settlement
If you want a viatical settlement, there are a few criteria that you need to meet in order be eligible. Here’s a list of those eligibility criteria.
- The policy should be issued by a licensed life insurance provider with a good reputation.
- The life insurance policy should be at least 2 years old.
- The life insurance policy should at least be worth $50,000.
- One of the most important criteria is- the policy holder should have a terminal illness.
Terminal Illness Clause Explained
If the policy holder is suffering from a terminal illness, his/her life expectancy should be less than 2 years. Life expectancy plays a major role in deciding the cash value for your life insurance policy. The lesser your life expectancy, the more cash you get when you sell your life insurance policy. This is because the buyer won’t have to pay for the premium for a long time before he cashes in the entire amount of your life insurance policy.
When all of these criteria are met, you are eligible to sell your life insurance policy and get a viatical settlement.
Why go for a viatical settlement?
There are many reasons why people sell their life insurance policy to get instant cash. Here’s why some of them go for a viatical settlement and the benefits of it.
- For people who have been paying a premium for a long time, it tends to get burdensome after some time. As the rate of the premium keeps on increasing, by the time one becomes a senior citizen, the rates of the premium reach its peak and become burdensome. This is when; people decide to rather sell their life insurance policy. This helps them to stop paying premiums, and get instant cash.
- At the time of cash crunch, your life insurance policy can be a great asset that would get you instant cash to meet whatever needs you to have. When we talk about a viatical settlement, people who are terminally ill can cash in on their life insurance policy and spend the money on their treatment and medical expenses.
- People who are divorced, lose their loved one who was the insured or has children who have grown up and no longer require protection also go for a viatical settlement. For people who fall under any of the above-mentioned categories, the life insurance policy no more justifies the actual purpose it was supposed to fulfill. Thus, getting an instant cash value for the life insurance policy makes more sense.
- People who have taken a debt and have not yet paid it back might also liquidate their life insurance policy for instant cash. In case of an emergency, where they have no other asset and still need to pay back the debt, life insurance policy can prove useful.
Things to consider about viatical settlements
Before you go for a viatical settlement, there are a few points that you should consider. Here’s what you must know.
- Before you finally choose a company to get a viatical settlement from, don’t forget to get quotes from various companies. To get the best deal, you need options. Once you have quotes from several companies, you can choose the viatical settlement company that brings the best deal to your table. Also, make sure you look for reputable companies.
- Be very honest, outright, truthful, and exact about your medical condition while mentioning the details in the application you fill for the viatical settlement.
- Since the buyer of your life insurance policy would keep track of your health condition from time to time, you have to decide who gets access to your personal information.
- The funds should be deposited in an independent escrow account by the viatical settlement provider. This would protect the funds while the transfer is made.
- When we talk about viatical settlements, taxes might be involved. Make sure understand the taxed involved when you sell your life insurance policy. You can even take help from a tax advisor to have a clear idea about the taxes.
This is how viatical settlements are different from life settlements. Having a financial advisor and being completely aware of how to go about selling your life insurance policy is essential to get the justified settlement cash value for your policy. If you are thorough with the process and sell your policy to a reputable company, you would be able to get good cash value for your policy without any hassles.