What Companies Work with Viatical Settlements?
If you’re contemplating a viatical settlement, expect a significant haircut on your policy’s death benefit. Generally, depending on the specifics of your situation and the aggressiveness of the viatical settlement provider, you can expect to receive between 50% and 80% of your death benefit.
Thomas J. Brock, CFA®, CPAInvestment, Corporate Finance and Accounting ProfessionalThomas Brock, CFA®, CPA, is a financial professional with over 20 years of experience in investments, corporate finance and accounting. He currently oversees the investment operation for a $4 billion super-regional insurance carrier.
The laws and regulations surrounding viatical settlements can vary from state to state. Because of this, the companies that work with viatical settlements can vary across the country as well.
These companies typically must be regulated by the state government, and states usually offer directories or lists of approved companies that work with viatical settlements.
Working with a regulated and approved company is important because viatical settlements are an unusual type of product. The company is essentially gambling that the seller, who is terminally ill, will not live much longer and, therefore, will acquire a strong profit through the seller’s death benefit.
The Difference Between Viatical Settlement Providers and Brokers
Viatical settlement providers and brokers are not the same thing. A viatical settlement provider is essentially synonymous with a company.
The provider is the entity that is interested in purchasing a life insurance policy for a lump sum in order to become the beneficiary of the death benefit. The viatical settlement provider also takes over any premium payments at that point.
According to the Illinois Department of Insurance, a broker of a viatical settlement is basically an intermediary who represents the seller of the life insurance policy. The broker — either a company or an individual — can communicate with providers and help the seller find the best option for them.
What Licenses Do Viatical Settlement Providers Need?
The National Association of Insurance Commissioners (NAIC) adopted the Viatical Settlements Model in 1993, which implemented a regulatory structure to help manage the viatical settlement industry.
According to the NAIC, exact licensing requirements do vary. There may be variations by state as well.
Many state government sites offer providers guidelines and information on the licenses or prerequisites required to engage in viatical settlements.
What Do Viatical Settlement Companies Do?
Viatical settlement companies function by looking to purchase the life insurance policy of those who are terminally ill.
The idea is that when you sell your policy, you receive a sizeable lump sum of cash. Someone who is terminally ill may be interested in this because the money can be used to pay medical bills or simply provide the seller with a large amount of cash for the remainder of their life.
In exchange, the company or provider is now entitled to the death benefit when the seller dies. The company takes over premium payments when it purchases the policy as well.
Viatical settlement companies profit under the assumption that, when the seller dies, the payout from the death benefit exceeds what was paid in lump sum to the beneficiary.
How Do They Determine How Much a Viatical Settlement Will Pay Out?
Several different factors will play a role in determining how much a viatical settlement will pay out. Life expectancy is a major factor. Viatical settlements typically gear toward those who are terminally ill, meaning they have a couple of years or less to live.
The overall value of the policy and death benefit plays a big role as well. The number of remaining premiums and how expensive they are also determine the payout amount.
How Do You Choose a Viatical Settlement Provider?
When looking for a viatical settlement provider, consult your state’s list of approved and regulated companies to start.
This can give you a good sense of your options and ensure that you are dealing with a legitimate company. You may also want to reach out to a broker to help you through the process.
Brokers can help make sure you are selecting a company that makes the most sense for you and will provide you with a good lump sum payout.
Going over all your options and reaching out to multiple companies can give you the best chance of finding a good deal.
Frequently Asked Questions
A viatical settlement is when a company or provider purchases the life insurance policy of a terminally ill person in exchange for a lump sum payment. The seller gets immediate cash, and the provider profits off the death benefit when they die.
To be eligible for a viatical settlement, you typically have to be terminally ill. This means, you are only expected to live a couple more years or less. A viatical settlement could be right for you if you want or need immediate cash or if you don’t have family members to dedicate as beneficiaries.
A viatical settlement involves someone who is terminally ill selling their life insurance policy for a lump sum of cash. Life settlements follow the same general concept but involve a seller who is not terminally ill or imminently going to die.
The viator is the person who has a terminal illness and is selling their life insurance policy to a company or provider in exchange for a lump sum of cash.
The viaticated policy is the life insurance policy of someone who is terminally ill that has been sold to a company in exchange for a lump sum. The company now receives the death benefit when the seller dies.
