Life insurance policies are generally intended to help your loved ones manage their financial burden after your death. If you’re willing to forgo this death benefit, viatic settlements can make policies useful while you’re still alive, giving you money up front in exchange for your future life insurance payment. .
Losing your death benefit can have a big impact on who you leave behind, so viatic settlements are not something to be taken lightly. With many fonts now offering life insurance riders to help you while you are still alive, you may no longer need to sell your policy.
What is a viatic settlement?
In a viatic settlement, you sell the benefit of your life insurance policy when you have very little time left to live due to illness or injury, often less than two years. You can sell any type of life insurance – term, integer, universal, etc. – but you will need to find a buyer in the market for this type of policy.
Sales of a life insurance policy are generally referred to as living establishments, and when they occur towards the end of their life, they are called viatic colonies.
Viatic settlements are different from policy options that allow you to receive part of your death benefit while you are still alive, although they often apply in the same situations. The most common version of this is the Accelerated Death Benefit Rider, which allows you to take a portion of your death benefit if you are diagnosed with a critical or terminal illness.
For some people, the lack of an accelerated death benefit or the need for more money than the benefit provides may cause them to sell their future policy benefit.
How much does a viaticum settlement cost?
The payment you receive from a viaticum settlement will be somewhere between the value of the policy’s death benefit and any cash value the policy has accumulated.
If the $ 150,000 is not enough, you may be able to get a viatic settlement of $ 500,000 by dropping the policy.
The actual amount paid depends on all the securities involved and the seller’s life expectancy. As a general rule, the longer you live, the less you will be paid. Making a viatic settlement also means life insurance beneficiaries that you originally chose will not get anything out of your policy when you die.
Compare this payment to an accelerated death benefit rider, which could allow monthly payments over a two-year period. Your $ 1 million policy could allow total payments of $ 250,000 and, upon your death, your beneficiaries would still receive $ 750,000 – the first million dollars minus your $ 250,000 in accelerated payments.
The amounts vary depending on the value of your policy, your health, the type of policy you have, and even the state you live in. Accelerated death benefit riders typically offer payouts between 25% and 75% of your policy value. Viatic settlements can range from 5% to 80% of the policy value.
Basic Principles of Viaticum Establishment
In most states, participating in a viatical settlement requires that you and the purchaser (the “viatical settlement provider”, which is usually a business ”) meet requirements, including rules regarding your health. Like an accelerated death benefit, most regulations require you to have a chronic illness or terminal illness.
To get the best possible tax treatment for your payment, you will need to sell to a business in your state. Imposing a viatic settlement can be complex, and anyone considering a settlement should speak to an independent financial advisor.
In many cases, your policy will need to be of a certain age before you can sell it. States that regulate viatic regulations often require that you have held the policy for at least two to five years before selling it. This is how you don’t buy a policy to sell it immediately after receiving a terminal diagnosis.
Alternatives to Viatic Colonies
In many cases, an accelerated death benefit will replace the need for a viatic settlement. The process for requesting an expedited benefit is relatively straightforward. The rider is available on most insurance policies and the benefits are often not much less than a settlement would provide.
If you have life insurance with cash value, you may also want to consider borrowing as part of your policy. A life insurance loan keeps your coverage in place, generates immediate cash flow, and leaves something for your beneficiaries.