A viatical settlement could be a potential solution to financial distress which is all too often correlated to a terminal or chronic illness. A viatical settlement is when the terminally ill sell their life insurance policy to a third-party buyer of life insurance policies, for a cash settlement which is less than the death benefit.
You do not have to be terminally ill to sell your life insurance policy, but your age and the status of your health are the primary drivers of value in life insurance sold in the secondary market. It stands to reason that someone who is terminally ill would have more value in their life insurance policy than someone who is the same age but in good health.
Viatical Settlement Companies
Viatical settlement companies come in all shapes and sizes. Having helped people sell their life insurance policy for more than 15 years, Viatical.org knows of over 100 funds that purchase life insurance policies.
Some buyers of Life Insurance will only buy policies with life expectancies of over 10 years. Some life insurance purchasers will only purchase policies if they’re over a million-dollar face amount.
There are buyers that only purchase policies where the life expectancy is less than two or three years. Some buyers will purchase group life insurance if you’re terminally ill and others won’t even look at it. It matters who you call when you’re trying to find a viatical settlement company.
There are viatical settlement brokers which will take your policy to market. We never dissuade anyone from getting a quote from a broker, in fact we encourage it. Most brokers do not want you shopping your policy in the market and if you’re working with a broker, please tell them that you’re getting a direct bid through Viatical.org.
You should never have any obligation to sell and you should never come out of pocket a penny to pay for medical files or any documentation that someone needs to purchase your life insurance policy. Some viatical settlement companies will purchase a portion of your policy allowing a death benefit for your beneficiaries. This is often less profitable and often not mentioned. Some companies will not do a retained death benefit purchase.
Because we work with so many viatical settlement buyers and through reputable licensed providers for closings in your state, viatical.org can usually help you find available options in the market. Our founder helped present the direct-to-consumer model at the Life Insurance Settlement Association (LISA) conference and that process is digital, compliant, and secure.
Viatical Settlement Valuation
The viatical settlement evaluation process is simply contrasting how expensive your policy will be to keep enforce until your death. It sounds a lot simpler than it is. First, your policy must be analyzed to figure out all of the cost of insurance expenses and that needs to be contrasted beside a third-party independent life expectancy report.
Life expectancy reports can be anywhere from $300 or $400 to over $1,000. Medical files from doctors can cost $50 to $1,000 and the sicker you are, the more doctors you often have.
Once your medical records and insurance information is obtained and analyzed you’ll know approximately what your policy is worth in the secondary market for life insurance.
Generally, the sicker you are and the more defined your life expectancy is, the more you’re able to receive for the sale of your life insurance policy. Some life insurance policies are very expensive and there could be little value even with a shortened life expectancy. Other life insurance policies maintain guaranteed provisions whereas even a healthy 70-year-old could have value in their life insurance policy. Every case is different.
Viatical Settlement Process
The viatical settlement process is essentially the same as the life settlement process. The difference is that a true viatical settlement is considered an advance of your tax-free death benefit from your insurance policy whereas a life settlement is considered the sale of property.
Though the viatical settlement process is quite involved behind the scenes, it’s rather straightforward for anyone selling their life insurance policy. Once we have your authorization to secure your medical and insurance information directly from your doctor and insurance company, you’re essentially done in the process until you decide if you’re accepting a bid or not.
The behind the scenes of the viatical settlement process is a little more involved. Your medical records have to be received compliantly under HIPAA guidelines. Your insurance company provided in force illustrations and verification of coverage must be analyzed thoroughly for pricing. Your insurance policy provisions have to be read prior to anyone purchasing your life insurance policy for cash.
It can be a very expensive and often drawn-out process without automation. We try very hard to make the process as thorough and efficient as possible.
Viatical Settlement Taxation
The primary difference in viatical settlement taxation and the taxation on the sale of a life insurance policy by a relatively healthy person is that a viatical settlement is considered an advance of your death benefit.
When you die, your life insurance policy death benefit passes to your beneficiary tax-free. The IRS allows that if you are terminally ill as defined by the provisions in your state viatical settlement statutes, that you may consider the proceeds of the sale of your life insurance policy as an advance of your death benefit.
If you sell your insurance policy and you’re not terminally ill, it’s just considered the sale of property. When you sell property, you owe capital gains on the profit which is above and beyond your cost basis. There used to be an elaborate calculation to discern the cost of insurance from any cash value element you’ve received, but our lobbying as an industry has made it much easier to calculate.
Though you should always speak to your accountant or tax advisor when selling a life insurance policy, the general cost basis of your policy is simply what you’ve paid in overtime.
Viatical Settlement Qualification
Viatical settlement qualification and qualifying to sell your insurance policy is the same exercise, but means two different things. If you are deemed terminally ill, the sale proceeds are tax-free on a viatical settlement. Apart from that, there’s no difference in the qualification to sell your life insurance policy.
Viatical.org has a pretty simple process. Give us a call and usually in 5 or 10 minutes, we can tell you if you’re likely to qualify to sell all or a portion of your life insurance policy. It’s impossible to arrive at an exact value in a 5-minute conversation and anybody that offers to purchase your insurance policy quickly is certainly making sure they have a cushion.
If you do qualify to sell your life insurance policy as a viatical or a life settlement and are in dire need of cash, Viatical.org is often able to work with someone to help alleviate the financial strain. Every circumstance is different, but we truly try to help with respect to thoroughness and speed.