Viatical settlement

What is a Viatical Settlement?

A viatical settlement is a financial transaction whereby an individual with a life insurance policy sells the policy to a third party for less than its full value, but more than the cash surrender value. This is often an option for policyholders who are terminally ill or have a chronic illness and need immediate cash to cover medical or other pressing expenses.

How Does Viatical Settlement Relate to Financial Factoring?

Financial factoring commonly refers to the sale of a business's invoices at a discount to a third party, known as a factor, to accelerate cash flow. Similarly, a viatical settlement is a type of factoring, but instead of invoices, it involves life insurance policies. The policy owner sells their right to the future death benefit in exchange for an upfront lump sum of cash from the purchaser.

The Process of Viatical Settlement

The viatical settlement process begins with the policy owner deciding to sell their life insurance policy. They must then find a settlement company or broker who can arrange the sale. The buyer or a group of investors evaluates the life expectancy of the insured person and the policy's value to offer a settlement amount. Once agreed upon, the policyholder receives the cash payment, and the buyer takes over the policy premiums and eventually collects the death benefit.

Advantages and Considerations

One of the most significant benefits of a viatical settlement is that it provides financial relief to individuals who are facing serious health challenges. Instead of waiting for a death benefit that may only be of use to their beneficiaries, they can utilize the funds when they need them most. However, it’s important to weigh this benefit against the loss of the future death benefit for beneficiaries, potential tax implications, and the need for careful consideration of offers to ensure fair value is received.

Choosing a Viatical Settlement Company

When considering a viatical settlement, selecting a reputable company is essential. Look for an organization that is transparent about its process, fees, and the potential impacts on beneficiaries. It is also critical to obtain professional advice to understand the tax and legal implications fully.

Conclusion

A viatical settlement is an option for life insurance policyholders to access the value of their policy before death, providing a source of funds when facing terminal or chronic illness. This settlement is a unique form of financial factoring that converts a policy’s future benefit into immediate cash, empowering policyholders during difficult times.