There are many reasons you may need extra funds, such as being diagnosed with a severe illness, having an ill or disabled family member, or being unemployed. Although life insurance policies are purchased to pay for your final expenses, your life insurance policy can be an asset used to finance unexpected life developments.
Life insurance policies can be sold through a viatical settlement or a life settlement. If you are considering these options, it’s essential to understand the distinction between a viatical and life settlement, and how to pursue the best settlement for you.
Anyone diagnosed with a terminal illness can pursue a viatical settlement. A third party buys the policy. They pay less than the policy’s payout value, but more than the original policyholder would receive if they cashed in their life insurance policy. The seller receives a lump sum of cash from the buyer. Under the terms of the viatical settlement contract, the buyer becomes the beneficiary of the life insurance policy and receives the policy’s full value upon the seller’s death.
People with any terminal illness, such as Alzheimer’s disease, cancer, congestive heart disease, or liver disease, are eligible to pursue a viatical settlement.
A life settlement involves selling a life insurance policy for a cash amount. Policyholders do not need to be terminally ill to pursue a life settlement. Sellers receive a higher amount of money than they would if they surrendered their policy, but less than the policy’s full value. Like viatical settlements, the buyer becomes the beneficiary of the policy.
Only terminally ill policyholders are eligible to pursue viatical settlements. Any policyholder can pursue a life settlement. Buyers typically pay higher settlement rates for viatical settlements. Profits from life settlements are taxable. Profits from viatical settlements are not taxable.
A viatical settlement provider negotiates the sale of a life insurance policy on behalf of the policyholder. Viatical settlement providers, such as American Life Fund, specialize in brokering life insurance policy sales on behalf of terminally ill sellers. Work with viatical settlement brokers who have experience with your specific condition. They will understand your diagnosis and know how to negotiate the best possible rate.
Life insurance settlement companies can pursue a buyer for your life insurance policy. They act as a broker and negotiate the contract between the buyer and seller.
The buyer is responsible for paying the monthly life insurance policy fees once they acquire your policy. Individuals who have more than one life insurance policy or can’t afford their existing policy can benefit by reducing their expenses.
Healthcare costs are expensive. Cancer patients face expenses for treatment, as well as prescriptions. They may need medications that cost $100,000 per year or more. If you opt to pursue a viatical settlement, you can opt to use the funds to pay for medical care, although you are not required to do so.
Selling your life insurance policy will provide you with capital to cover your needs. Once you sell your policy, you are free to use the proceeds for any purposes. Set up college funds for your children, pay off your mortgage, travel the world, or start a new business.
Upon your death, the buyer receives the benefits from your life insurance policy. These funds will not be available for your dependents to use to cover your final expenses or resolve debts. Buyers will not pay the full cash value of your life insurance policy. It’s also possible that any creditors you currently have will pursue a lien against your settlement.
You may not be eligible for benefits, such as food stamps if you receive a settlement. If you pursue a viatical settlement and survive your illness, you may not qualify for another life insurance policy.