What is a Viatical Settlement?
A viatical settlement is for those who are terminally ill or chronically ill. They have the opportunity to sell their life insurance policy for a one-time, lump sum, cash payout. A viatical settlement is a transaction between the insured and a licensed third-party, known as a “provider or buyer”.
Once the life policy has been sold, the provider/buyer takes over and, pays the insurance premiums going forward. When you sell your life insurance policy to a provider/buyer, you no longer own the policy, and your beneficiaries are no longer entitled to the death benefit. When you pass, the death benefit now goes to the provider/buyer that purchased the policy from you.
If you have been declared “terminal” by your doctor, you are a candidate for a viatical settlement.
A person is considered terminally ill when you have an illness or condition that can reasonably be expected to result in death within two years.
According to Investopedia: “Terminally ill is a medical term that refers to a person who has a disease that cannot be cured and that will eventually lead to their death”.
“Terminal illness or end-stage disease is more commonly used for progressive diseases such as cancer, dementia or advanced heart disease than for injury. In popular use, it indicates a disease that will progress until death with near absolute certainty, regardless of treatment. A patient who has such an illness may be referred to as a terminal patient, terminally ill or simply as being terminal”.
Examples of terminal conditions or end-stage of life conditions include, but not limited to;
- late-stage or advanced cancer
- congestive heart failure
- liver failure
- pulmonary disease
A person is determined chronically ill when they unable to perform at least two activities of daily living on their own.
To qualify as chronically ill, it must be verified that you cannot perform at least 2 of daily-living activities on your own.
- using the bathroom
- bathing oneself
- You could also be considered chronically ill if you require supervision because of cognitive impairment.
A viatical settlement helps those who are facing end-of-life with a terminal illness. You may be eligible for a viatical settlement if you are chronically ill, and this varies by state.
If you have a life insurance policy that is no longer needed or wanted, consider selling your life policy for cash. Once the policy has been sold, you are able to use the funds anyway you choose.
Your life expectancy is just that – something that is expected. You could live longer or die earlier. Be sure to think through all scenarios before making your decision to sell life insurance policy.
MRE Finance has over 25 years of expertise and will guide you through the process with ease.
How Does a Viatical Settlement Work?
A viatical settlement is a transaction between two parties; the insured and a third-party provider/buyer that purchases the life policy.
- The insured receives a lump sum cash payout for the policy now, and the buyer will receive the death benefit when the insured passes.
- The life expectancy directly influences the payout amount.
Generally, the estimate value of the policy is 55% to 80%, for a viatical settlement. This is less than the death benefit and more than surrender value of life insurance policy.
Trying to sell your life insurance policy on your own for a viatical settlement is not recommended. It is quite difficult without a licensed third-party buyer who works on your behalf so you receive the highest payout. Without an expert, the process becomes longer, and the payout is less.
How Long Does it Take to Receive Cash From a Viatical Settlement?
The process to receive cash from a viatical settlement takes approximately 6-8 weeks to be finalized. Timelines can vary based on who your insurance company is and, the provider/buyer receiving the documents required for processing.
Some basic information is needed from you so the provider/buyer can evaluate the estimate value of the viatical settlement. If the buyer is interested, an offer will be made to purchase the life insurance policy and, you have the right to accept or reject the offer.
MRE Finance provides a free estimate calculator (click button below), where you can find out the estimate value of what your policy could be worth for a viatical settlement.
What Basic Information Do You Need To Provide?
You will be asked to provide some basic information to ensure the buyer can provide a more accurate estimate of the potential value of your life insurance policy.
So you are prepared, here are some basic questions you will be asked:-
- your age
- state you live in
- health condition
- type of insurance policy (Universal, Whole, Convertible term, Variable etc.)
- the policy pay out amount (death benefit)
- how much are the premiums
- your contact information
You’ll need to be honest about your medical situation. The buyer will need to review your medical records and asses life expectancy. The buyer also calculates their investment against the amount and number of premiums they will have to pay on the policy after it has been purchased.
MRE Finance guarantees that your personal information will only be used to provide an estimate of the potential value of your policy and will only use this information to assist you in selling your life insurance policy for a viatical settlement. Your information will never be sold to a third party in another industry and, we take your privacy and security very seriously.
Is a Viatical Settlement Taxable?
Viatical settlements are not taxable…. most of the time and varies by state.
For terminally ill policy owners, viatical settlements are considered an advance of the life insurance death benefit.
There are exceptions. The IRS imposes a list of conditions on tax-free viatical settlements and the laws vary by state. Some states will follow the federal taxation guidelines and, some do not, regarding viatical settlements. It is recommended that you speak with your tax advisor to understand the laws and rules of the state you live in.
The provider/buyer must follow the disclosure guidelines outlined in the Viatical Settlements Model Act by the National Association of Insurance Commissioners (NAIC).
The provider/buyer must comply with the NAIC’s reasonable payments guidelines for those terminally ill. These guidelines indicate the minimum payouts for a policy based on the life expectancy. Those insured that have a shorter life expectancy will receive a larger payout.
If a medical physician has certified that the policy owner is terminally ill and, has less than 24 months to live, the viatical settlement proceeds are tax-free as long as the policyholder is an individual.
The requirements are somewhat different when the policy owner is chronically ill, but not terminally ill. A chronically ill individual may have a more “open-ended” life expectancy and, not able to perform two or more activities of daily living.
If the insured is chronically ill, a viatical settlement may be tax-free. This may vary based on the state you live in. The proceeds are to be used to cover out-of-pocket, medical, long-term care, or custodial expenses. Specifically, expenses that are not covered by Medicaid, health insurance, or long-term care insurance.
Are You Unable to Pay Your Policy Premiums?
If you are unable to pay your premiums, you no longer want or need your life insurance policy and, you have been diagnosed with a terminal illness, or chronically ill, a viatical settlement can be a great option.
Financially, it is best to sell the policy for a viatical settlement now, rather than losing its entire value by lapsing the policy or surrendering the life policy to the insurance company for a small portion of the value.
Find out the estimate value of your life insurance policy with the MRE Finance FREE life settlement calculator in minutes.
What Does Surrendering a Life Policy Mean?
Surrendering a life insurance policy means canceling the policy and receiving its surrender value, which is the cash value minus any surrender fees and, the coverage ends. Your beneficiaries will not receive a death benefit when you die and, you’ll owe taxes on the amount you receive that’s above the cost basis.
- Based the type of policy you have, it may take many years to build up any substantial cash value. This means you may, or may not have much cash value built up.
- Surrender fees to the insurance company tend to decrease over time. The longer you’ve held the policy, the larger the cash value will likely be.
- If the cash surrender value is worth more than what you have paid in premiums, you will need to pay income taxes on the difference.
The surrender value of a policy is based on the portion of premiums that went into the cash value policy account plus, the interest rate paid or investment gains. Then, the outstanding loans are subtracted, along with any surrender fee from the insurance company.
What does Lapsing a Life Insurance Policy Mean?
Lapsing a life insurance policy means that you stop paying the life insurance premiums and the contractual grace period has expired. The life policy will be terminated and there is no longer a death benefit for your beneficiaries. All premiums you paid for all those years are now gone.
You may be able to reinstate a lapsed policy by meeting certain requirements depending on the type of policy and you may have to requalify for coverage. This includes your health status and medical records.
According to Boons Wang Law firm; “When one applies for reinstatement, the insurance company gets the opportunity to review your most recent medical records to reconsider whether they would agree to insure you. If your application for reinstatement is accepted, this also resets your two-year contestability period. Thus, if the insured dies within two (2) years of the effective date of the reinstated policy, the insurance company may contest or deny payment of the death benefit based on any misrepresentation on the reinstatement application”.
Can I Use The Cash from a Viatical Settlement to Pay Medical Bills?
The answer is yes. Many people with a terminal illness are often overwhelmed with medical bills and struggle to pay them. By selling your life policy for a lump sum cash payout, you can use the funds to pay for anything you choose, including medical expenses.
- A life insurance policy could be one of the most valuable assets you own.
A viatical settlement offers a way to receive cash from your life insurance policy now.
Here are some examples of what you can use a viatical settlement to pay for:-
- medical bills
- home care
- assisted living
- palliative care
- hospice care
- pay off debt
- take a vacation
- donate to charity
…….ANYTHING YOU CHOOSE!
What Are the Pros and Cons of a Viatical Settlement?
Pro: The advantage of a viatical settlement is you receive an immediate lump sum cash payout. This can be especially essential if you have medical bills or other substantial expenses due to your terminal condition.
Pro: A viatical settlement provides you to extra cash now, while you are still alive. You can enjoy your life with your family and friends with no financial burdens.
Pro: Your family will have little to no financial burden if the viatical settlement can pay all debt, funeral, celebration of life services etc.
Cons: You must consider that a viatical settlement means that your family will not receive a death benefit when you die.
Cons: Work with your tax advisor to determine if there will be any taxes owed. This varies by state and whether you are terminally or chronically ill.
Viatical Settlements with MRE Finance
Paying for care expenses such as hospice, in-home care or assisted living when you have a terminal or chronical illness can be very expensive. Selling your life insurance policy for a viatical settlement will provide you with the funds you need now and this may be the best option for you. The funds from a viatical settlement can be used to cover the costs for end-of-life care without burdening your family.
That said, selling your life insurance policy in an option to be considered. Be sure to work with experts, such as MRE Finance, to help you receive a fair offer.
First and foremost, find out what the estimate value of your life policy is worth.
MRE Finance is an industry leader that helps people with a terminal illness, to sell their life insurance policy for a viatical settlement with generous payouts. We guide you through the process with ease and transparency.
If you are considering a viatical settlement or learning more, contact the experts at MRE Finance today!
Try our FREE estimate calculator to find out what the value of life policy is worth for a viatical settlement. You can also call us at 1-800-521-0770 and speak to a specialist to answer all your questions.