Unlocking Value: Exploring the Viatical Settlement Option in Life Insurance

May 13, 2024

Getting Started

Viatical settlements are an important aspect of life insurance policies that provide a unique financial option for policyholders facing critical or terminal illnesses. This arrangement allows policyholders to sell their life insurance policies to third-party investors, known as viatical settlement providers, in exchange for a lump sum payment. The viatical settlement industry emerged in the 1980s in the midst of the AIDS epidemic and has since expanded to include a wider range of medical conditions.

The Viatical Settlement Process

The viatical settlement process typically involves several steps. First, an individual diagnosed with a terminal or chronic illness applies for a viatical settlement. The viatical settlement provider evaluates the policyholder’s medical condition and life expectancy, as well as the terms of the life insurance policy. If approved, the provider offers the policyholder a cash payment, usually a percentage of the policy’s face value, taking into account factors such as the policyholder’s life expectancy, premium costs, and the policy’s cash surrender value.

Once the policyholder accepts the viatical settlement offer, he or she transfers ownership of the life insurance policy to the viatical settlement provider. The provider becomes the new beneficiary of the policy and assumes responsibility for paying the policy premiums. In return, the policyholder receives the agreed upon lump sum payment, which can be used to cover medical expenses, living expenses, or other financial needs.

Benefits of Viatical Settlements

Viatical settlements offer several benefits to policyholders facing serious or terminal illnesses. First, they provide access to immediate funds, which can be critical for individuals who require expensive medical treatments or specialized care. The lump sum payment can alleviate financial burdens and ensure that necessary medical and living expenses are covered. Viatical settlements also provide policyholders with the flexibility to use the funds as they see fit, whether it’s to pay off debts, travel, or improve their quality of life during their remaining years.

In addition, viatical settlements offer an alternative to surrendering or lapsing a life insurance policy. When policyholders surrender a policy, they often receive only a fraction of its face value. In contrast, viatical settlements offer the opportunity to receive a higher payout, typically more than the policy’s cash surrender value. This allows policyholders to unlock the value of their life insurance policies and maximize their financial resources at a time when they need it most.

Considerations and Risks

While viatical settlements can be a valuable financial tool, it’s important to consider certain factors and risks associated with this arrangement. One important consideration is understanding the tax implications. In some countries, the proceeds of a viatical settlement may be subject to income tax. Consultation with a tax professional can help policyholders navigate the tax consequences and determine the most advantageous approach.

In addition, policyholders should carefully evaluate the reputation and financial stability of the viatical settlement provider they choose to work with. Researching the provider, checking for any complaints or legal issues, and understanding the terms of the contract are essential steps in protecting one’s interests.

Another consideration is the impact of a viatical settlement on government benefits. Depending on the jurisdiction, receiving a lump sum payment from a viatical settlement may affect eligibility for certain means-tested benefits or assistance programs. Policyholders should consult with a financial advisor or an attorney specializing in elder law or estate planning to understand the potential implications.

The Future of Viatical Settlements

As medical advances continue to extend life expectancy and improve treatments for critical illnesses, the viatical settlement industry is likely to evolve to meet changing needs. The market for viatical settlements may expand as more individuals become aware of this financial option and as regulations adapt to ensure consumer protection. In addition, advances in underwriting methods and medical technology may improve the accuracy of life expectancy estimates, leading to more accurate viatical settlement offers.

In summary, viatical settlements provide a valuable financial alternative for individuals facing terminal or chronic illnesses. They offer immediate access to funds, flexibility in their use, and the opportunity to maximize the value of life insurance policies. However, it is important for policyholders to carefully consider the potential risks, tax implications and impact on government benefits before pursuing a viatical settlement. By making informed decisions and working with reputable professionals, individuals can navigate the viatical settlement process and secure financial assistance during difficult times.


What is a viatical settlement in life insurance?

A viatical settlement is a financial arrangement in which a terminally ill policyholder sells their life insurance policy to a third party for a lump sum payment. The buyer of the policy, known as a viatical settlement provider, assumes the responsibility of paying the premiums and becomes the beneficiary of the policy. The payment received from the sale can be used by the policyholder to cover medical expenses, improve their quality of life, or fulfill any other financial needs.

How does a viatical settlement work?

When a policyholder decides to pursue a viatical settlement, they typically work with a viatical settlement provider. The provider evaluates the policyholder’s life expectancy, the value of the policy, and any other relevant factors. Based on this assessment, they make an offer to purchase the policy. If the policyholder accepts the offer, the provider pays a lump sum to the policyholder, who then transfers the ownership and beneficiary rights of the policy to the provider.

Who can qualify for a viatical settlement?

Viatical settlements are generally available to individuals who have a life insurance policy and have been diagnosed with a terminal illness. The specific eligibility criteria may vary depending on the policies of viatical settlement providers. Typically, the policyholder’s life expectancy must be within a certain range, such as two years or less. The policy itself must also meet certain requirements, such as having a minimum face value.

What are the advantages of a viatical settlement?

Viatical settlements can provide several benefits for policyholders facing terminal illnesses. Some advantages include:

  • Financial support: The lump sum payment from the settlement can help cover medical expenses, treatment costs, and other financial obligations.
  • Improved quality of life: Policyholders can use the funds to enhance their quality of life, fulfill personal wishes, or create lasting memories with loved ones.
  • Relief from financial burden: Selling the policy allows policyholders to alleviate financial stress and focus on their health and well-being.

What are the potential drawbacks of a viatical settlement?

While viatical settlements can be beneficial, they also have some potential drawbacks to consider:

  • Reduced death benefit: By selling the policy, the policyholder forfeits the death benefit, which could have provided financial support to their beneficiaries.
  • Tax implications: Depending on the jurisdiction and circumstances, the proceeds from a viatical settlement may be subject to taxation. It’s important to consult with a financial advisor or tax professional to understand the potential tax consequences.
  • Impact on public assistance eligibility: The lump sum payment from a viatical settlement could affect eligibility for certain government benefits or assistance programs.

Are viatical settlements regulated?

Yes, viatical settlements are subject to regulation in many jurisdictions. The specific regulations vary by country and state, but they generally aim to protect the interests of policyholders. These regulations may include licensing requirements for viatical settlement providers, disclosure obligations, and consumer protections. It’s important for both policyholders and settlement providers to comply with the applicable regulations to ensure a fair and transparent process.