Viatical Settlement – The Ultimate Resource For Policyholders

There are so many folks who consider they don’t require a life insurance policy. But, in the current contemporary world, we may not expect what happens the next minute. There is no guarantee of life for all people. In order to help your family members even after your death, you need to take a life insurance policy. It is actually a contract between the policyholder and the insurer. The assurer ensures to make payment of the designated amount in exchange for a premium.

In case, if you are severely ill then, you can sell your existing life insurance policy to a 3rd party for more than its actual cash value and less than its face value. The benefit that people will receive after death will be decided at the time of selling the policy. This process of selling your life insurance policy to a 3rd party for some amount is referred to as Viatical Settlement. It is a particular phrase utilized to describe a life insurance settlement in case the insured party is chronically ill or suffering from some disease.

If you are not fully aware of the viatical settlement and the time to use it then, we are here to help you folks through this ultimate guide. Here is everything you need to know about Viatical Settlement, its benefits, the procedure to regulate the viatical settlements and more. We have even included the eligibility for an individual to use Viatical Settlement of their life insurance policy. Check out the complete guide about the benefits of viatical settlement for the policyholders. Have a look!

Viatical Settlement

What is a Viatical Settlement?

A Viatical Settlement is actually a type of settlement of the policyholders regarding their life insurance policy. This settlement includes buying a life insurance policy from an elderly policyholder. The person who holds the policy will sell the policy to a purchaser for a certain price from the policy value by providing some discount. The person who sells the policy has cash in hand and the person who buys it will get a profit whenever the seller dies and the further proceedings are given to the buyer. Meanwhile, the buyer will endure paying the premium amount either monthly or yearly.

In general, there are two types of Viatical settlements. One is for those who are suffering from a serious illness. It means the person whose life expectancy is less than 24 months. On the other hand, the second type of Viatical Settlement is those who are chronically ill. It indicates that if an individual may not be able to perform any kind of self-activities such as eating, bathing on their own or some other day-to-day chores. Sometimes, chronically ill also refers to as a person who needs supervision by other people so as to keep them safe from their health hazards and threats.

During the transactions of Viatical Settlement, the life insurance policyholder will transfer the ownership to some other third party holders. Once if you sell your policy, you are no longer responsible for your former policy premiums. Moreover, they will get a cash payment which is more than the surrender value of the policy. The third party person who purchases the policy is also known as a viatical provider. He is actually responsible for paying all the premiums as well as the expenses associated with the insurance policy. The procedures of Viatical Settlement is quite identical to the life settlements. There is only less number of major elements that one must consider for Viaticals.

How are Viatical Settlements Taxed?

As Viatical Settlement is a difficult issue-tax code on the federal level may not often agree with the state law. They may not follow the specific guidelines as fixed by the Internal Revenue Code. The terminally or the chronically ill policyholders need to pay the premium without any taxes. Most of the payouts for the viatical settlements are identical to the death advantage. It indicates that the money you get is tax-free, you need to make sure that you fulfill all the requirements in the Internal Revenue Code. It is actually a part of legislation that places the foundation for the taxation of Viatical Settlement.

The first and foremost requirement is that the policyholder must be ill having a life expectancy of fewer than 2 years or they need to have a chronic health condition. If you don’t fall under this category, the person who pays the policy is considered as a standard income and taxed based on the rules. People need to contact their own legal, tax and accounting advisors prior to making any kind of transactions of their policies.

How are Viatical Settlements Regulated?

In general, the viatical settlements are handled and managed by each and every state based on their corresponding insurance departments. As of now, more than 45 states have universal viatical settlement laws and regulations. More than 90 percent of people in the US are secured by state regulations. The major thing that the viatical settlement regulates is that it covers the time period for how long a policy owner owns their policy prior to turning out to become eligible for selling it.

The history of Viatical Settlements:

In fact, the term Viatical originated from the Latin term Viaticum. It indicates a supply of provisions or an official grant of money for an expedition. The Viatical settlements offer cash to the terminally ill policyholders. Viator is a person and the owner of the policy who sells their own life insurance policy death advantage to some other third party individual. The sale of the life insurance policy was originally established in the year 1911. The entire case turned around a life insurance policy in the Supreme Court of the United States. Due to the medical improvements made for the Viatical Settlements for the AIDS patients during that period, they have initiated the procedure of viatical settlement.

Does a Viatical Settlement make Sense?

One can consider selling their life insurance policy in the following cases:

Unable to Afford Insurance Premiums: If you are unable to pay your premium amount due to the increased medical bills then, you can prefer Viatical settlement in order to evade the policy regression. The policy lapse might direct towards no payout based on the type of policy.

Term Policy Approaches Expiration Date: The term policies usually expire without any cash value and costly replacement charges. In case, if the term policy becomes invalid in the future then, it might make sense to transform it into permanent insurance and finally engages in a Viatical settlement.

No Necessity to Safeguard against Income Loss: The major reason to sell the life insurance is that you don’t need to make your spouse or child as a dependant on the claim if you die in future.

Seeking to Rejoice Final Days: This type of settlement lets the candidates augment their income so that they can rejoice their remaining living days.

Am I eligible for a Viatical?

Not all of the policyholders are eligible to acquire the profits through Viatical Settlement. These type of settlements have levied accurate eligibility requirements on the policyholders. This way, both the purchasers as well as the sellers will remain safe at the time of the policy sale. There are three factors that are considered in order to check whether you are eligible for a Viatical settlement or not. Check it out below!

  1. Health

In general, the Viatical settlements are required for the folks who are not well in terms of their health. It means that if you are suffering from bad health or terminally ill then, you are eligible for a viatical settlement. If a person has constrained life expectancy then, they can ask for a viatical settlement. You need to ask your doctor to write a letter confirming that you are suffering from a serious health condition.

In order to qualify for this settlement, you need to get diagnosed with a critical health condition. In case if your life expectancy doesn’t go beyond 2 years then, you are eligible for this settlement. Such folks must take part in a health examination and get the confirmation prior to finishing the settlement.

  1. Policy Type

The candidates who are eligible for a viatical settlement include term life insurance policy, universal and whole life insurance policies. The maximum number of policies that get executed are widespread life. The policyholders need to hold their life insurance policy for about a minimum amount of time included in your state. Mostly, different states need the policyholders to hold it for at least 2 years. However, some of them are set to a minimum for more than 5 years.

  1. Policy Value

The candidates will receive a viatical settlement in case if the total value of your life insurance policy is more than $50000 in terms of its face value. It is sometimes referred to as the policy size.


That’s all! This is everything you need to know about Viatical Settlement, its benefits, the procedure to regulate this settlement and more. Hope this guide has given enough information about Viatical Settlement, eligibility and more. For more information regarding the life insurance policy, Viatical settlement and more, just ask us in the below comments section.

Author: Naveen EThis is E.Naveen Kumar full time Content Writer, SEO, Digital marketing Expert, founder of Really enjoying playing cricket at free times. Being a Btech Graduation from Computer Science stream Selected full-time blogging as my Profession.

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