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What Are Viatical Settlements?

Finance Lifestyle News

A life insurance policy is something that’s a good idea to purchase, regardless of age and health. It’s simply wise to make sure that the ones you love are taken care of, even if the worst should happen to you. Many Americans agree with the wisdom of buying life insurance, which is probably why about 60 percent of people in the United States held a life insurance policy in 2018.

Whether you’ve chosen to buy life insurance because you’re starting a young family and want to take care of your spouse and kids, or because you’re looking towards retirement and have decided the time is right, you’re doing the responsible thing if you opt to be a life insurance policyholder.

With all that being said, there are also times when it makes sense to stop paying monthly premiums on life insurance. Maybe you need the cash value of your policy sooner than you thought you would, to pay off debts or take care of medical expenses you hadn’t planned on. Whatever the reason, if you need to opt-out of your life insurance policy, your best bet is either with a viatical settlement or a life settlement. Read on to learn what a viatical settlement is and how you can use one to your benefit.

What is a viatical settlement?

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A viatical settlement may sound complex, but it’s actually a pretty simple concept: the transfer of a life insurance policy from the policyholder to a third-party buyer. Basically, a policyholder who has a chronic illness or a terminal illness can turn to a viatical settlement broker who will manage the contract in order to transfer the policy to a third party. That third party will, in turn, become the beneficiary of the original policyholder’s death benefit upon their passing. It may sound morbid, but it’s quite matter-of-fact. If someone has a lower life expectancy and needs a lump sum payout immediately to take care of their finances, why shouldn’t they have the option to offload the burden of monthly premiums to their insurance company, and get a cash payout into the bargain as well?

Who is eligible for a viatical settlement?

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As mentioned above, a viatical settlement provider will not be able to broker a deal between a policyholder and a third party unless the policyholder’s medical records indicate that they have, indeed, been diagnosed with a terminal illness that has a significant impact on their life expectancy. The whole point of a viatical settlement contract is to help out a policy owner who has found themselves looking at the end of their life within a couple of years. The top viatical settlements can go a long way towards providing ill patients with the relaxation that comes with knowing that their finances are taken care of. Bear in mind that a viatical settlement contract is not dependent on age, it’s about what the medical records say. Therefore, policyholders who are seniors can get a viatical settlement contract just the same way a young person with a chronic illness would.

What is the difference between a viatical settlement and a life settlement?

These two terms are nearly synonymous, but there are some key factors that make all the difference between a life settlement and a viatical settlement. For one, a viatical settlement is sold to a third party who then becomes the beneficiary of the original policy’s death benefit. A life settlement, on the other hand, is an agreement between the policy owner and the insurance company‚Äîyou’re selling the policy back to the company you bought it from. Another key factor is taxation. Life settlements are often subject to tax, while viatical settlements are not. Lastly, viatical settlement contracts are reserved for those with a dire medical diagnosis, while life settlements can be carried out at any time, regardless of health status.

Both options, however, allow the prior policy owner to use the lump sum payout for whatever they’d like. You can use the money to pay off credit card debt or invest in mood-boosting home decorating ideas. Once the viatical settlement contract is signed, you can spend the money on decor, essential oils, candles, and throw pillows. Or, you can take a trip to Hawaii to learn paddle-boarding. Whatever you’d like to spend your money on is your business.

It would be wonderful if we all had long lives ahead of us, but, unfortunately, that’s not always the case. Don’t spend your whole life worrying about premium payments, especially if you have other options that can help you enjoy the time with more relaxation and peace of mind. If you think a viatical or life settlement is the right route for you, contact a broker and learn more.