Viatical Settlements (2020 Guide)
What is a Viatical Settlement?
A viatical settlement is the sale of a life insurance policy by a policyholder for a cash lump sum, due to chronic or terminal illness. Most of the time, the sum is used to pay for medical costs, medical coverage or home accommodations. Unlike traditional life settlements, policyholders can be younger when affected by a serious medical condition.
Viatical settlements have been around for more than a century but they became more popular since a 2010 Supreme Court ruling (see the full history of life settlement to learn more)
Our experts put together the guide below to help you understand how viatical settlements work, who is typical candidate and how the process works. If you have any questions, feel free to contact us directly.
Use the table of contents below to navigate through the guide.
Table of Contents
Viatical Settlement vs Life Settlement
The main difference between a viatical settlement and a life settlement is the reason behind selling your life insurance policy (you can read our full life settlement guide to learn more).
More specifically, a viatical settlement transaction involves a terminal or an advanced-stage illness. This is an overwhelming situation for anyone affected and the financial consequences can add an additional burden. Medical costs can add up especially if the illness requires assisted living and constant support. Since health insurance does not cover every single cost, viatical settlements are a way for many people to obtain a cash lump sum.
Top 5 Reasons for a Viatical Settlement
A viatical settlement is an important financial decision and selling your insurance policy can have major consequences on your personal finance, from your access to liquidity to tax implications. Typically, we see five scenarios where people opt for viatical settlements, listed below.
1. Current & Future Cost of Medical Care
A recent study made by the Federal Reserve Bank of Richmond in 2018 dove into End-of-Life Medical Expenses, specifically in the last 5 years of one’s life.
The results are staggering with out-of-pocket expenses ranging from $38,596 to $65,826 depending on the person’s main health condition. The amount varies based on the nature of the disease, with mental illness such as dementia at the top of the list.
*Source: Federal Reserve Bank of Richmond, 2018
Overall, a study in 2019 showed that a 65-year-old couple retiring in 2019 will approximately require $390,000 to take care of their medical expenses for the rest of their lives.
Therefore, many seniors consider a viatical settlement as a way of gaining access to a lump sum of funds and get ready for their future.
2. Nursing Home Cost
According to the U.S. Department of Health and Human Services, a person turning 65 years old today has a 70% chance of requiring some sort of long-term care services at some point in their lives.
Assisted living facilities are expensive and programs like Medicare only offers coverage for 100 days while Medicaid requires the person’s income to be under a specific level. According to U.S. News, a private room amounts to $8,000 per month with an average stay of 835 days, which is more than 2 years. This represents a total cost of $216,000.
This can be a significant expense for many seniors who simply do not have that much cash on hand, and their level of income do not allow them to qualify for Medicaid. Thus, selling their life insurance policy to opt for a viatical settlement creates an essential cash influx.
3. Assisted Living
Understandably so, many seniors want to stay at home even if they are affected by a terminal illness (about 75% across the country). Some opt for assisted living facilities who help people live in a residential setting while receiving day-to-day help from a skilled personnel. Residents maintain a certain level of independence and can interact with others in different social activities and programs.
Additionally, many offer hospice care or “end-of-life care” within their facility. Rules and regulations vary by state but for many seniors, this is a viable option to live with a serious illness without staying at a hospital or a nursing home. However, assisted living can be expensive with some amounting to $5,000 per month.
While cheaper than a nursing home, this option can still translate into a financial burden. The life settlement industry has seen many of those cases where a viatical settlement makes sense.
4. Supporting Relatives
In addition of the emotional impact, a person affected by a serious or terminal illness can have significant consequences over their family’s financial health. In many families, people want to personally support their parent or spouse through this difficult time and make adjustments to their work schedule or profession. This can result in a lower income and increased day-to-day costs such as traveling and more.
Those conversations are very difficult to have with family members and the financial burden may not facilitate it. Viatical settlements can provide some relief for you.
5. Home Enhancements
Finally, there is a growing number of individuals who wish to stay-at-home as long as possible even if they are affected by a serious illness. However, many houses are not fit for a comfortable lifestyle and home improvements are necessary. Those cost can add up pretty quickly if you consider things such as medical beds, handicap ramps, chair lifts, wheelchairs and additional medical supplies. For example, A bathroom remodel can go up to $20,000 alone.
Viatical Settlement Process
A viatical settlement can seem like a daunting process to go through. Most financial assets usually require extensive paperwork when bought or sold. However, at Cedar Life Settlements, the process can be broken down in 6 essential steps, listed below.
Step 1: Fill out the settlement application. The application includes your contact information, details surrounding your policy (type, benefit, premiums) and general questions about your health.
Step 2: Gather the required documentation. You may need to email (or mail) information about your life insurance policy and sign a release to your medical records. We will compile your information into a file.
Step 3: Let us review your information & search for offers. Your file will be presented to a multitude of investors. They will review your documentation and evaluate their potential return on investment. After review, they typically send us an offer.
Step 4: Get offers from the investor(s). The offer(s) will be communicated directly to you or your advisor (such as your agent or insurance broker ). Most of the time, various cash offers are made which allows you to select the highest one. Some may be negotiable but you are always able to walk back at any time.
Step 5: Complete the “Closing package“. The closing package is a list of legal documents that will close the sale of your life insurance policy. and should be signed by the investor and yourself.
After all paperwork is signed and completed, the payout is processed and you will receive funds by check or direct deposit.
Read more here.
Do I Qualify for a Viatical Settlement?
You may be eligible for a viatical settlement depending of your life insurance policy and your current health status.
- Your life insurance policy needs to be one of the following:
- Whole Life Policy
- Universal Life Policy
- Term Policy Sill Convertible to Universal Life
- Term Life Policy
- Joint Survivorship Universal Life
- You have had your policy for at least 2 years.
- The policy’s payout should be $100,000 re more.
- You (or the policyholder) has had a recent significant change in your health
Pros and Cons
Choosing to sell your life insurance policy is an important life decision. See our list of advantageous and consequences below.
Risks of Viatical Settlements
A viatical settlement has a significant on your financial situation and it is important to know the potential risks before opting for one. Please see the main items below to consider before starting the process.
Choosing to go through a viatical settlement may have a significant impact on your personal finances. We recommend talking with your financial advisor to make sure that this is the right decision for your and your family
There are many different ways to reduce the tax burden from a viatical settlement. You may consult your financial advisor for the best tailored solution to your situation. Additionally you can read about viatical settlement tax implications in our dedicated page.
While a life settlement broker typically charges fees and lacks transparency when it comes to commissions, Cedar Life Settlements believes in strong business ethics and values. Therefore, we do not charge any upfront fees and the commissions will be shared with you during the process.
Although the process takes a few weeks, it is important to consider that your premiums will still have to be paid until the sale is final and funds may take additional time to reach your bank account.
The viatical settlement process requires the collection of personal information, including medical records. Although Cedar Life Settlements has a strong commitment towards their clients’ privacy, it is important to know that this information will be collected and shared with investors.
How Much Can I Expect?
A viatical settlement is calculated based on multiple factors. Investors will look into three main categories of information in order to measure their return on investment, and more specifically:
Your policy’s death benefit: It is also referred as the face value of the policy.
Future premium payments: The company purchasing your policy will have to undertake these payments.
Life expectancy: This last item is the most complicated to evaluate for obvious reasons. However, life policy buyers will look into national data (such as the Social Security Administration’s calculator) or their own algorithm. Additionally, your medical records, general health, level of exercise and other things such as your smoking or drinking habit will influence the estimate significantly.
The life settlement amount if clearly very important as it will impact your decision to sell or keep your life insurance policy. Therefore, Cedar Life Settlement created its own viatical settlement calculator. It only takes a few minutes to get a real time estimate without any commitment.
Frequently Asked Questions
Yes. Your information is only shared with a selected group of investors for the sole purpose of selling your life insurance policy. None of your data is sold for any other purposes. You can read more about our values here
Life settlement have only become popular recently (read more about the history of life settlements in our blog)
Additionally, life insurance providers are not encouraged to share this option with their customers since it goes against their business interest.
Yes, it is possible. The technical term is a Retained Death Benefit (or RDB). Please contact us directly to learn more about the options available to you.
Once your policy is sold, the buyer will acquire all of the obligations associated with it. This includes the payment of premiums and any additional paperwork.
Why Cedar Life Settlements?
Cedar Life Settlement acts as a broker on your behalf and help you navigate through the viatical settlement process.
You can start the process by using our form. An estimate will be instantly calculated and our team will contact you shortly thereafter.
Cedar Life Settlement is committing to three core values that are differentiating the company from any other viatical settlement brokers on the market. Read more on our about us page.
- The website contains as much information as possible so our customers understand all facets of a viatical settlement and if it is the right financial decision for them.
- Our customers data is kept confidential and only shared with investors.
- Cedar Life Settlements is in the process of acquiring a B-Corp Certification since all people deserve equitable treatment in financial matters.
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