Life Insurance Settlements (Viatical
Life Insurance Settlements
Life Insurance Settlements or viatical
settlements as they are also known is the process of selling the
cash payout of your life insurance or portion thereof for upfront
So why would anyone sell their life
insurance benefits? Well in some cases, the life insurance
might be no longer necessary. If for instance the life
insurance policy was
secured to protect a dependent or spouse but that beneficiary dies
first, then that need for protection no longer exists.
Other times, a portion of the life
insurance policy proceeds might become necessary to pay off bills,
prevent foreclosure, pay health related expenses, or just simply to
live on. John Meecham was diagnosed with terminal cancer and
was unable to work. The house payments had gone unpaid for
several months and disaster seemed imminent. By selling off
half of his $2 million life insurance policy, John was able to pay
off his house and do a bit of traveling with his wife before he died
a year later.
How life settlements (viaticals)
Viatical settlements are
pretty straightforward. A policyholder who can demonstrate that he
has been diagnosed with a terminal illness sells his policy to a
settlement company for a fraction of its face value, depending on
estimated life expectancy. People over age 70 can also often find
buyers as well.
With the life insurance policy in
now owned, the purchasing company solicits investors who receive the
death benefit when the viator dies. Out of its portion of the
investment, the viatical company pays premiums on the policy
to keep it in force until the viator dies. In some cases, the
company may require that investors pay the premiums.
Any type of insurance can be used in a "viatical
settlement" including whole life, universal, term, or group
life provided by an employer. But the policy must allow the viator
to assign, or transfer, it to an unrelated beneficiary. The viator
must have owned the policy for at least two years before he/she
sells it. This is done to prevent people from taking advantage
of insurance companies by taking out and then selling a life
insurance policy when they receive a terminal diagnosis.
Life settlement (viatical)
Viators who are ill and
often desperate may be at the mercy of viatical companies.
Under a regulation developed by the National Association of
Insurance Commissioners (NAIC), viators would be guaranteed to
receive a minimum payment that is based on a sliding scale according
to life expectancy.
For instance, a viator with an
estimated life expectancy of six months would receive 80 percent of
a policy's face value, but someone expected to live 18 to 36 months
would receive 60 percent. To date, however, just nine states
(Arkansas, Connecticut, Kansas, Louisiana, Maine, Minnesota,
Mississippi, Oklahoma, and Vermont) have chosen to adopt the payment
schedule for life insurance settlements.
If you plan on selling off part of
your life insurance policy for cash, it is highly recommended that
you see a lawyer who is experienced in the value of such
things. It may take a few extra days or you may have to do
some shopping, but life insurance settlement agreements can vary tremendously in the
amount of money you can pull out.
In one recent study, the same
insured with the same policy and same conditions received quotes
from 22% of face value to over 60% of face value. Do your
shopping and don't take the first offer. In the same study, it
was found that there was room for negotiation and life settlement
buyers often came back with larger offers when the first was turned
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