Viatical settlements are, essentially, a specific form of life settlement. When the life settlement industry was born, viaticals inevitably followed. Put simply, a life settlement is the sale of an existing life insurance policy to a third-party buyer in exchange for a one-time cash payment. This payout is generally more than the policy’s cash surrender value but less than the actual death benefit. The third-party purchaser then takes on the responsibility of paying the plan’s premiums in exchange for receiving the death benefit following the original policyholder’s passing.
Generally, life insurance is purchased to grant the policyholder peace of mind in daily life that their beneficiaries will be taken care of financially in the event of their death. In some situations, however, it may no longer make sense to hold on to a life insurance policy. If a person simply needed one until their children were through school and established on their own, for example, then there may be no point in continuing to pay premiums. If one can no longer afford their premiums, it likely makes more sense to sell the policy than to let it lapse. Finally, one might seek to sell their policy if their finances simply demand it. When coming up against unforeseen expenses, especially for those with lower salary figures, such as minimum wage workers, a life insurance sale can be a great financial windfall.
In fact, the original life settlement case was completed for such a matter. In the United States Supreme Court Case of Grigsby v. Russell, it was ruled that life insurance policies are personal property and may be sold as such. In this groundbreaking case, Dr. Grigsby accepted the life insurance of a patient as payment for surgery, and thus, life settlements were born. Since the 1980s, viatical settlements have seen an increase in popularity, but unlike life settlements, they’re reserved for specific purposes. Here are three things that make viaticals unique.
1. They’re only meant for chronically ill patients.
While a life settlement can be pursued by anyone for any reason, the viatical settlements offered by companies like American Life Fund are only meant for terminally ill patients or for patients with chronic illnesses that significantly impact their quality of life. In order to qualify, applicants typically have to have a life expectancy of two years or less. These settlements are often sought by cancer patients or those with a similar diagnosis seeking money for either treatments or palliative care if the situation has moved beyond the curative stage.
While this requirement seems grim, these settlements can be great boons for both patients and their families, and they can at least eliminate or ease the financial aspect of such a troubling time. Generally speaking, applicants will simply need to provide their medical records and some basic information to get the application process going, and they can receive their settlement in as little as a few business days.
2. They’re tax-free.
While HIPAA is mostly known as an information privacy act, it also ensured that the gains from a viatical settlement are tax-free under federal law. So long as the seller of a life insurance policy meets all the requirements for a viatical, they won’t have to pay any income or capital gains taxes on the settlement. This makes them a much better option over traditional life settlements for those who qualify. It is important, however, to remember that the settlements still need to be filed, despite this status.
3. There’s no limit on their use.
Another great advantage of viatical settlements is that they can be used for absolutely anything. This, of course, includes things like treatment, at-home care, and other medical necessities. However, the recipient of the settlement could also use the money to pursue their interests, to travel with family in the time they have left, to donate to causes they believe in, or any other use they think is right. Recipients can take comfort in the fact that no one has a right to dictate how their money is used.