Viatical Settlements

A viatical settlement involves the sale of your life insurance policy once you have become chronically or terminally ill. Depending on your type of life insurance coverage and insurance carrier, you may have certain policy provisions within your insurance policy that allow for an advance of your death benefit and that avenue should certainly be explored. You will most likely find that if you are expected to live beyond six months and have no cash surrender value; your financial options are often very limited with respect to your life insurance, apart from a viatical settlement.

Viatical settlement companies fulfill certain and distinct roles in the viatical settlement process. A viatical settlement provider typically fills orders for viatical investments or often purchases viatical settlements for their own account. Whereas a viatical settlement broker has a fiduciary responsibility to you, the viator. Viatical brokers should shop your insurance policy to the highest bidding viatical providers that are licensed in your state.

What are Viatical Settlements?

It may be easier to associate the sale of your life insurance policy with real estate. There are typically a buyer’s agent and a seller’s agent in a real estate transaction with respective fiduciary responsibilities. You can go directly through the selling agent if you are purchasing a home and may get a better deal from the agent with respect to their fee, but you may also put yourself in jeopardy of making a mistake in assessing value that no one on your side of the transaction is aware of.

Real estate value is typically determined by an appraisal. The same is somewhat true with viaticals. With real estate, your location, structures, land and various other variables are assessed against recently transacted property closings. Though your insurance company, policy size and type are all factors in the value of your viatical settlement; the largest variable is your LE or life expectancy.

One of the most important viatical companies works behind the scenes. The life expectancy provider assesses your life expectancy based upon your medical information and your physician’s prognosis of your health. Once the life expectancy provider has provided an LE, the viatical providers can then do their internal calculations on your policy to arrive at a value in the viatical market.

Viatical Settlement and Taxation

Life expectancies have been a hot topic in the life settlement and viatical industry. There has been viatical fraud with respect to life expectancy and some officers of life settlement companies are currently in prison. There are typically few complaints from the viator or seller side. Once you sell your insurance policy for cash, your responsibility is complete apart from allowing the viatical settlement provider to periodically verify that you are alive.

Though viatical settlements, life settlements and senior settlements are essentially the same thing, their taxation varies. The definition of terminal is expressed in years and varies from state to state and is typically two to four years. This stipulated period is crucial in assessing viatical settlement taxation.

If your life expectancy is beyond the definition of terminally ill as defined by your state, the proceeds of your life settlement may be considered partially taxable, based upon what you have paid in, cash value and the ultimate sales price. Viatical settlement taxes are not typical if you are deemed terminal by your State’s definition. A tax expert should be consulted in all cases once you have a projected value of your insurance policy. The fact that some life settlement proceeds may be deemed as ordinary income and may affect certain senior government programs that are based upon income thresholds is often overlooked.

Do Your Homework

You should explore all of your options and always secure your own independent viatical settlement quote before initiating the sale of your life insurance policy. The viatical settlement process can seem onerous, but much stress can be alleviated if you know on the front end what your life insurance policy is worth in the secondary insurance market as a viatical settlement.