Life insurance settlement has been in the news a lot lately. You can see advertisements for high payouts to policyholders by companies everywhere. At the same time, the news is filled with articles on scams, fraudulent schemes, and bad investments targeted at senior citizens. Find out what a viatical settlement actually is and see if it is the best alternative for you.
It is a transaction between a person with a terminal illness and a financial company (that is not the company issuing the policy). The policyholder sells their life insurance policy for less than the face value of the policy but more than the amount they would have received from the insurance company at the time of surrender.
Most policies can be surrendered to the insurance company in return for a specified cash value. Quite often, a settlement option can give you more money for your policy than you would get by surrendering it. This can come in handy for health-related expenses or moving costs or if the premium payments have become unaffordable for you. Since the only option is to let a policy lapse if you don’t make premium payments, such a settlement can be a good alternative.
This settlement option is different from a life settlement on insurance policies since the insured has to be terminally or chronically ill at the time of the transaction. In other words, a doctor has to certify that your life expectancy is less than 24 months for a viatical settlement to be possible. If your life expectancy is longer, you should consider a life settlement instead.
Certain other factors go into calculating the value of your life insurance policy. For instance, most medical settlement companies are interested in policies that have a death benefit of $500,000 or more. Your policy has to be two years or older to have any value. Insurance companies can challenge any claim made on a policy that is less than two years old. If you bought your policy from a smaller insurance provider, buyers may be less interested. However, that alone is not a reason to disqualify your policy.
Life settlements are not the answer for everyone. However, the life insurance policy is your personal property to sell in times of need. If you are terminally ill and need cash to meet medical expenses today, the viatical alternative can make more sense than continuing to pay premiums on a policy that is of no use to you anymore.