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You might have heard about viatical settlements at some point in your life. Viaticals, also referred to as life settlements, have recently gained more traction among financial advisors as more seniors become more aware of them. In fact, 2015 saw a 32.6% increase in total viatical transactions over 2014. With more conversation surrounding viatical settlements, we’ve found that a lot of the information that is out there is mismanaged, giving individuals an unclear representation of what viaticals are and how they can provide a very real benefit to policy holders.
What is a Viatical Settlement and How Does It Work?
Viatical settlements are the legal sale of a life insurance policy to a third-party buyer for more than the policy’s surrender value. In a viatical, a policy holder transfers both the policy’s death benefit and the responsibility of maintaining premium payments to the party purchasing the policy.
Who Benefits from Viatical Settlements?
Viatical settlements aren’t for everyone, but those who qualify can find a very real, tangible benefit in the process. On a basic level, there are two types of people who might consider arranging a viatical settlement:
- A person who is terminally or chronically ill who needs funds for ongoing medical care.
Or
- A senior over the age of 65 who no longer has a need to keep their life insurance policy. Viaticals can provide immediate financial benefits to seniors in many different situations:
- They experience financial hardship during retirement, often due to high medical care costs.
- They lack the financial resources to maintain their desired retirement lifestyle.
- They maintain interest in acquiring more liquidity to put towards investments.
- They took out the policy for estate tax purposes but, due to recent tax law changes, no longer need to keep the policy alive.
Is a Viatical Right for You?
If you’re an individual who falls into any of the above categories, you might find a viatical, or life settlement, to be practical and beneficial. If you hold a policy that you no longer find necessary or wanted, you might be the right candidate. Before making any decisions, you should consider your current financial situation and the future of your policy—are keeping the death benefits for the beneficiary important? Talk about viatical settlements with a trusted advisor, or give us a call today to learn more about them and whether it’s a right fit for you.
Case Study:
Steve retired several years ago due to a downsizing/restructuring at his employer. Steve owned a convertible term life insurance policy which he no longer needed. Steve sold his policy for $35,000 in cash and was able to retain $100,000 in death benefit as well.
