A person who is terminally might need money to pay for medical or living expenses, or even to take a special trip with family members. One way to raise cash at this difficult time is to sell a life insurance policy to a viatical settlement company. A similar arrangement for someone who is not terminally ill is called a life settlement or, for people 65 and older, a senior settlement.
You Can Raise Cash
Viatical settlements are arrangements in which a terminally ill person sells a life insurance policy to a company that buys these policies as investments. Most providers define "terminally ill" as two years or less to live. You sign the policy over to the viatical settlement company and, in exchange, you receive a lump sum payment. The company continues to pay the premiums on the policy or sells it to another investor. When you die, the new owner of the policy receives the full value.
Rules Vary Among Companies
Rules vary among providers of this service, so check with several viatical settlement companies before you decide. Most companies require that you've owned the policy for at least two years and that your beneficiary has released any rights to the proceeds. Some companies require documentation from a medical expert that your life expectancy is two years or less. The buyer will also want to be sure that the life insurance company is not likely to go out of business and that the policy won't be canceled.
Payoff Amounts Vary
Most companies pay the insured person between 60 and 80 percent of the policy's value. If you have a $100,000 policy, for example, you can expect to receive a lump sum payment of $60,000 to $80,000 from the company. The amount will depend on your age, life expectancy, premiums to be paid and the risk to the viatical settlement company. If you are terminally ill, the federal government will not tax the money you receive, but your state might.
Consider the Alternatives
A viatical settlement may not be the best choice for you. Selling your policy means that your family won't get the proceeds after your death. Receiving a large lump sum payment may also disqualify you from government programs such as Medicaid. Alternatives include getting a loan against the value of the policy or turning the policy in for its cash value. If you have questions about viatical settlements, most state insurance departments regulate viatical settlement companies and brokers.
An Insurance Lawyer Can Help
The law surrounding selling a life insurance policy for cash is complicated. Plus, the facts of each case are unique. This article provides a brief, general introduction to the topic. For more detailed, specific information, please contact an insurance law lawyer.