When comparing viatical settlements vs living benefits, both options provide a way to access funds from a life insurance policy while still alive, but they differ significantly in how they work, eligibility requirements, and financial implications. Understanding the differences can help policyholders make informed decisions about which option best fits their financial needs during challenging times.
What Are Viatical Settlements?
A viatical settlement involves selling a life insurance policy to a third-party buyer for a lump sum cash payment. The buyer takes over premium payments and receives the death benefit when the insured passes away. Viatical settlements are often used by individuals with a terminal illness who need immediate financial assistance for medical bills, caregiving, or other personal expenses. If you have a longer life expectancy, explore viatical vs life settlements as life settlements are available to those with a longer life expectancy.
Key Features of Viatical Settlements:
- Eligibility: Typically available to policyholders diagnosed with a terminal illness, such as cancer or ALS, with a life expectancy of two years or less.
- Payout: Offers a lump sum cash payment, higher than the policy’s cash surrender value but less than the full death benefit.
- Ownership Transfer: Ownership and beneficiary rights are transferred to the buyer.
- Use of Funds: No restrictions on how the funds can be used.
What Are Living Benefits?
Living benefits, also called accelerated death benefits (ADB), allow policyholders to access a portion of their life insurance death benefit early, directly from their insurance company. Living benefits are typically included in the policy or available as an optional rider.
Key Features of Living Benefits:
- Eligibility: Available for terminal illness, chronic illness, or critical illness, depending on the policy terms. Some policies require a life expectancy of 12 months or less.
- Payout: Provides a portion of the death benefit in advance, reducing the payout to beneficiaries after the insured passes away.
- Ownership: Policy ownership remains with the policyholder.
- Use of Funds: Generally flexible, though some policies may impose limitations.
Viatical Settlements vs. Living Benefits: Key Differences
| Feature | Viatical Settlements | Living Benefits |
| Source of Payment | Third-party buyer | Life insurance company |
| Ownership Transfer | Yes, policy is sold to a buyer | No, policyholder retains ownership |
| Payout Amount | Lump sum, based on policy value and life expectancy | Portion of the death benefit |
| Eligibility | Terminal illness (life expectancy <2 years) | Varies by policy (often <12 months life expectancy) |
| Use of Funds | No restrictions | Typically no restrictions |
| Impact on Beneficiaries | Beneficiaries lose the death benefit | Reduced death benefit payout |
| Tax Implications | Often tax-free for terminal illness | Often tax-free for terminal illness |
When to Choose a Viatical Settlement vs. Living Benefits
Consider a Viatical Settlement If:
- You need a larger lump sum than what your living benefits rider offers.
- Your policy doesn’t offer a living benefits rider or you don’t meet the qualifications.
- You no longer need the life insurance policy for beneficiaries.
Consider Living Benefits If:
- You want to retain policy ownership.
- Your life insurance policy already includes the living benefits rider.
- You need a partial payout for medical expenses while maintaining coverage.
Both viatical settlements vs. living benefits can provide essential financial relief during difficult times, but they serve different purposes. A viatical settlement offers a full policy sale for a lump sum, while living benefits allow early access to a portion of the death benefit. Policyholders should carefully review their policy terms to determine which option aligns best with their needs.
To learn if you are likely to qualify for a viatical settlement, please give us a call at 800-973-8258