Viatical Settlement

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It can be uncomfortable to talk about money and estate planning, particularly if death is near. But it's important to integrate financial planning into the overall process of getting one's affairs in order.

Many people who are terminally ill find themselves in need of cash to pay medical bills, cover household expenses, or fund final dreams. Viatical settlements are one of several ways to cash in your assets before you die.

A viatical settlement basically involves selling your life insurance policy at a discount to someone else who will collect the face value when you die. Most viatical settlement providers pay a lump sum from 50% to 85% of the face value of your policy, depending on your life expectancy.

Are viatical settlements a good deal? Like most things, the answer depends on your personal situation and the specific deal you are offered.

While many people in the viatical settlement industry are honorable folks who provide a real service, we hope that there's a special corner of Hell reserved for the unscrupulous con artists in the business. Since few people have any experience with arranging a viatical settlement, the chances of getting ripped off are high unless you do your homework.

Consider all your alternatives and don't assume that a viatical settlement is the only way to go. There are other ways to get cash at the end of life such as a reverse mortgage or use of Accelerated Death Benefits on your life insurance, if such benefits are available to you. These options often offer better payouts than a viatical settlement.

Unfortunately many general financial planners, accountants, and tax advisors are unfamiliar with the obscure viatical settlement industry, so you can't count on getting accurate advice from non-specialists. If you have a general financial advisor by all means get them in the loop during your research period, but don't be surprised if you need to provide them with some background on viaticals.

If you own life insurance start your research by calling your current insurance agent or company to find out if your policy includes an accelerated death benefits (ADB) provision. You may be able to collect anywhere from 25 to 100 percent of the death benefit in an early payment depending on your circumstances and the terms of the policy. Because these accelerated payments already may be included in your coverage, they are the "no brainer" deal which a viatical company will need to beat. ADB options usually pay 50% to 80% of the face value of your policy depending on your life expectancy. You may be able to choose between a lump sum or monthly payments. Even if your policy does not have ADB options you still may be able to get your insurance company to give you a loan secured by future benefits.

There's really no delicate way to say this, so we might as well be blunt. How much money you will get from a viatical settlement or accelerated death benefit provision depends on how quickly you are likely to die. From the point of view of the person or company that cashes out your policy, it would be nice if the policy "matures" right away. Most viatical settlement providers will only buy your policy if you have thirty-six months or less to live, but some will permit longer terms. Most ADB clauses require that your life expectancy be twenty-four months or less.