What issues should I consider in a viatical settlement and a life settlement?

Both viatical and life settlements entail the selling of a life insurance policy to a third party, typically an investor. In return, the policyholder receives a percent of the death benefit in cash and the buyer becomes the beneficiary of the policy, pledging to pay all the premiums.

Issues to Consider in a Viatical Settlement

• To qualify for a viatical settlement, you need to meet certain criteria. You have to be terminally ill and have a life expectancy of less than 36 months. Although until recently the only people who were entitled to a viatical settlement were AIDS patients, nowadays it has expanded to include other life threatening conditions, such as cancer and heart disease.
• Almost any type of life insurance can be sold, as long as they have been in force for at least two years.
• Check the license of your company and whether it is registered in your state. The company should comply with the National Association of Insurance Commissioner's Model Act and Regulation on viatical settlements.
• You don't have to sell the entire policy.
• You can withdraw the cash value.
• The amount you receive will depend on a variety of factors. A life expectancy of 3-4 months, for instance, would bring 90% of the death benefit.
• If the settlement provider is properly insured and the viator has a life expectancy of two years or less, the proceeds of a viatical settlement may be exempt from federal tax. Conversely, the cash received can result in the loss of federal aid, such as SSI and Medicaid.
• If you have money to any institutions, they might lay claim on part of the proceeds.

Issues to Consider in a Life Settlement

• As an alternative to the surrendering of a policy, this option is appropriate for anyone who doesn't want or need their life coverage anymore, whose health has worsened since the inception of the policy and whose life expectancy is between 2 and 12 years.
• The insured has to be 65 years of age or older.
• The policy usually needs to have a minimum death benefit of $250,000.
• The policy has to be beyond the contestable period.
• The insured's person's medical record and health can be tracked until the insured's death.
• Income tax is owed on the life settlement proceeds.

Life settlements and viatical settlements have one major disadvantage: because the policies are sold to parties that do not have an insurable interest in the insured's life, these parties might have a financial interest in the insured's early death in order to collect the death benefits.

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