The Viatical Life Settlement, A Benefit to Terminally Ill

by M-Gillies
insurance policy with pen and US dollars

A viatical life settlement allows people who are terminally ill to sell their life insurance policy before they die in order to receive cash to pay for their care or to use to enjoy the time they have left.

In the simplest terms, viatical life settlements are the speculation of death in which, the longer the life expectancy, the lower the return. How it works is, an individual will sell their existing life insurance policy to a third party for more than its cash value but less than its net value after death. What happens next is the seller of the insurance will receive a lump sum payment, while the third party becomes the new policy owner, paying the monthly premiums. The catch, when the former owner passes away, the third party owner collects the full benefit of the insured.

For some people, this may seem like a morbid prospect. For others, this method was ripe for fraud, and then there are those who saw the benefit and the value of having a lump sum of cash handed to them before they passed away. These were individuals who were terminally or chronically ill.

The idea behind the method and reasoning of viatical life settlements made sense. Someone with little time left and couldn’t earn a salary was given an opportunity to do things, buy things, enjoy, indulge and experience the things they couldn’t have. It was, in a sense, an opportunity to fulfill a bucket list desire, but the origins of viatical life settlements were less than ideal.

It was in the late 1980s, the Space Shuttle Challenger had exploded, a nuclear blast irradiated Chernobyl and the New York Stock Exchange suffered a huge drop on what would become known as Black Monday, but it was also the peak of the AIDS epidemic.

Because the AIDS mortality rate was very high, while life expectancy was very short after diagnosis, the viatical life settlements offered a means of extracting value from a policy while the policy owner was still alive. What this meant was that investors purchasing life insurance would consider the purchase of insurance under the assumption that they would collect in a short period of time.

What happened next was a surge in viatical settlements when both investors and viators saw a mutual benefit from it. However, it wasn’t long before life insurers grew concerned over individuals purchasing policies purely for speculative purposes. Before long all but the states of Wyoming, South Dakota, Missouri, Alabama and South Carolina, have turned to regulating viatical settlements.

However, while some investors have had bad experiences with viatical settlements, these types of settlements have been found to be valuable tools for the personal financial management of many ill individuals, particularly those in hospices.

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