The Viatical Settlement - A Life Insurance Last Defense
A viatical settlement or life insurance are not thoughts that entice someone to jump out of their bed in the morning and say, “Whoo Hoo, I can’t wait to make use of my viatical settlement or life insurance policy today!” Viatical settlements in particular, are contracts designed as a “last straw’ or “last defense” against financial impoverishment due to extensive medical expenses, usually involving a person with a terminal illness. However, it is a final form of protection that only life insurance can generate, so it is worthy of mention and discussion.
Viatical settlements usually involve third parties, often viatical settlement companies who will purchase a life insurance policy from a terminally ill policy owner. The insured receives in return, a percentage of the face amount of the policy in a cash lump-sum payment to use for medical bills or other needs. When this occurs, the company becomes the owner and beneficiary of the policy and pays any future premiums. To the benefit of the insured, The Health Insurance Portability and Accountability Act (HIPPA) of 1997 provided that viatical settlements can be received tax-free for terminally ill individuals with less than two years to live, or for a chronically ill diagnosed insured.
These settlements may have certain eligibility rules. Some may require the life expectancy of the terminally ill individual to be 2 years or less, or the policy to be at least two years old. These and other factors can also be used to determine what the percent of the cash advance will be.
Some other factors could even include the rating of the life insurance company that issued the policy, or whether the policy has any additional riders, or meets the minimum guidelines of the National Association of Insurance Commissioners (NAIC) and so on. In any case, when the insured passes the viatical company receives the proceeds.
As mentioned earlier, this is not a situation that anyone wants to be in, because more than likely, by doing a viatical settlement the insured is not utilizing the policy for the actual reason they purchased it to begin with. However, on a more positive note, this is an option that the insured would not have had if they did not have a life insurance policy to begin with.
Life insurance can help in so many ways that we would normally never think it could. As uninviting as the concept of a viatical settlement seems, it does offer an alternative for a financially suffering individual or family, and it is important to know that such an option is out there if you should need it.
About the author: Kyle McDonald holds FIC, FICF, FSCP® & CLTC designations. His viewpoint on life insurance is simple, “Anyone with a family must have life insurance. In the end, life insurance is for others you care about, not you.” He is ready to help you and your family get the best option available. Contact Kyle today at 1-800-651-1953 or KMcDonald@Pivot.com.