Defining the Terms
A viatical settlement is the sale of a life insurance policy to a third party. The owner (viator) of the life insurance policy sells the policy for a percentage of the death benefit. The buyer becomes the new owner and/or beneficiary of the life insurance policy, pays all future premiums, and collects the death benefit of the policy when the insured dies. In the past consumers with a life-threatening illness have sold their insurance policies in return for immediate cash. A healthy person might also sell his life insurance policy to get cash.
A viatical settlement provider is the person or company that buys the life insurance policy from the viator.
The person or company who represents the seller and can "shop" for viatical offers is a viatical settlement broker. The provider pays the broker a commission if the sale is completed.
Check out all of your options before deciding to sell your policy. A viatical settlement may or may not be the right choice for you. Your state insurance department, along with the National Association of Insurance Commissioners, is concerned that many consumers may not fully understand viatical settlements. Please continue reading before you make any decisions.
- If you're interested in selling your life insurance policy, you should contact your state insurance department to get more information.
- If you've been contacted by someone who wants you to buy a policy and then sell it immediately, you should contact your state insurance department. It's possible you're being targeted to participate in fraud.
- If you're asked to invest in or buy a viatical settlement, we recommend you contact your state insurance department. Learn more about the issues and risks.
- Your state insurance department may regulate viatical settlement transactions. Contact your state insurance department for a copy of those regulations.
Questions to Consider
- Do I still need life insurance protection?
- If I sell my policy, how do they decide how much cash I get?
- Is this an employer or other group policy? If so, do I need their permission to sell it?
- If I sell my policy, who will be the legal owner?
- Do I need the advice of a tax or estate planning advisor before I decide to sell my policy?
- Will investors have specific information about me, my family or my health status?
- Is the broker or company I plan to sell to allowed to do business in my state?
- After I sell my policy, can it be resold by the buyer?
Consider All Of Your Options
If you're selling your policy to get cash to pay expenses, check all of your options. It's likely you'll find another way of getting cash that costs less than a viatical settlement.
- Consult your own financial advisor, who knows your personal financial needs.
- Ask your insurance agent or company if you have any cash value in your life insurance policy. You may be able to use some of the cash value to meet your immediate needs and keep your policy in force for your beneficiaries. You may also be able to use the cash value as security for a loan from a financial institution.
- Find out if your life insurance policy has an accelerated death benefits provision. An accelerated death benefit is a feature of a life insurance policy that typically pays some or all of the policy's death benefit before the insured dies. It may be a way for you to get cash from a policy without selling it to a third party.
- Contact a professional tax advisor. Find out the tax implications. Not all proceeds are tax free.
- Know that the proceeds are subject to the claims of any creditors.
- Find out if you'll lose any public assistance benefits such as food stamps or Medicaid if you get a cash settlement.
- Know that you must provide certain medical and personal information.
- Understand how the process works and when each step will happen.
- Decide whether to sell your policy directly to a viatical settlement provider or to go through a viatical settlement broker who will do the comparison shopping for you.
- If you don't use a viatical settlement broker, comparison shop on your own.
- You don't have to accept any viatical settlement offer.
- Check all application forms for accuracy, especially information about your medical history.
- You must be truthful in your answers to application questions.
- Make sure the viatical settlement provider agrees to put your settlement proceeds in escrow with an independent party or financial institution to make sure your funds are safe during the transfer.
- Find out if you have the right to change your mind about the viatical settlement after you get the proceeds. If you have that right, you'll have to return the money you were paid and the premiums paid for you. In many states you have the right to change your mind for a certain period of time.
- Understand what information a viatical settlement provider must know about you to buy your policy, and who else might get that information.