How Viatical Settlement Works

Any person suffering from a serious medical illness understands that not everything is covered by health insurance. Thankfully, holders of a life insurance policy are given a few choices to help provide solutions to financial problems. Among these choices is a viatical settlement which enables someone who owns a life insurance policy to sell off their policies to people who own several investments.

Investors purchase the full policy or certain fraction at a specific price lesser than the death policy's benefit. The return rate for the investor will be based on the time of the seller's death. There will be a lower return rate if the seller lives more than the estimated life expectancy. On the other hand, there will be a higher return rate if the seller's death occurs sooner than the time expected or estimated. When a person has a viatical settlement, it is a means of accessing an important part of the value of one's policy before the person dies. These funds can be utilized or spent on anything the person desires to buy. However, the person's beneficiaries will not be given the benefits of death from their policy.

To meet the qualifications of viatical settlement (or for it to make sense financially), you must have been diagnosed with a certain terminal or chronic disease. In that sense, developing a chronic illness may likely imply that you require help for a minimum of two things you engage in, in one's daily life.

Viatical Settlement Example

For the protection of friends and families, life insurance remains a very strong tool. However, in certain conditions, getting funds can be better before the death of the person that is is insured. For example, there may be no financial security for your wife and children, you don't need a death benefit, or you may just want a huge amount of cash for treatment when medical issues arise.

The specific amount the insurance company will give you is a percentage of the death benefit. If your life expectancy is short, the percentage you receive will be high. So, if you discover you only have about eight months to live, you can potentially make use of viatical settlement to exchange a $100,000 policy for almost 70% of the benefit of death—or $70,000.

Types of Viatical Settlements

Essentially, there are two types of viatical settlements. They are

  • The one for someone who suffers from a terminal illness
  • The one for someone who suffers from a chronic illness

The terminal illness viatical settlement is for someone expected to live no more than 24 months or less. The chronic illness viatical settlement is when a person can no longer carry out two or more daily essential duties. A chronic illness restricts a person from carrying out activities of daily living (ADL). ADL includes bathing, feeding, or even suffering from cognitive impairment. This illness is also a description of an individual who needs constant and substantial monitoring to protect himself or herself from all kinds of possible threats to well-being and safety.