viatical settlement


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Viatical Settlement

A transaction in which a life insurance policy holder sells his/her policy to a third party. The situation occurs when the policy's fair market value exceeds the cash surrender value that the insurance company offers. The third party is known as a life settlement provider, who, in the United States, must abide by applicable state regulations. The life settlement provider becomes the policy's new beneficiary, is responsible for maintaining premiums, and upon the death of the insured person, receives the benefit. The secondary market for life insurance began growing in the last part of the 20th century. In a viatical settlement, the life settlement provider is speculating on how long the insured person will live; indeed, it is in the life settlement provider's financial interest for the insured person to die as soon as possible. A viatical settlement is also known as a life settlement.

viatical settlement

The purchase of a terminally ill person's life insurance policy for a certain percentage of the policy's face value. The amount paid depends on the size of the policy and the length of time the policyholder is expected to live. The company that purchases the policy begins paying the premiums at the time of purchase and collects the death benefits when the insured dies.

Viatical settlement.

Technically speaking, a viatical settlement occurs when a life insurance policy is sold for cash to a third party before the original owner dies.

Most viatical settlements involve terminally ill people with life expectancies of less than two years who choose to sell their life insurance policies to raise money for their medical care.

In a viatical settlement, the third party pays the former policy owner an amount that is typically more than the surrender value of the policy, but less than the death benefit. When the insured person dies, the new policy owner collects the death benefit and makes a profit on the difference between the amount paid to the insured and the amount paid on the claim.

Some businesses specialize in viatical settlements, and may resell them as investments, arrangements that are regulated by the state in which the policies are sold.

Because viaticals are controversial, more complex than they seem, and have been aggressively and sometimes misleadingly marketed, both people considering selling their policies and people considering investing in them are advised to proceed with caution.

References in periodicals archive ?
However, just as advancements in treating AIDS led the viatical settlement market to succumb to longevity risk, the substantial increases in longevity during the 20th and 21st centuries can pose substantial longevity risk to buyer in the current life settlement market.
The primary subject matter of this case concerns viatical settlements.
Virginia enacted its Viatical Settlements Act in 1997 to address the state's concern with the "potential for exploitation of vulnerable and seriously ill individuals.
The settlement process begins when the viator executes a viatical settlement application and provides authorization to the insured's attending physician and the issuing insurance company to disclose confidential information pertaining to the insured's health and insurance coverage.
For example, American Benefits Services, a viatical settlement company, promoted viatical investments by promising a return 42 percent greater than the amount invested, to be received on the death of the viator.
To determine the life expectancy of the viator, the viatical settlement company has a board of physicians evaluate the person's illness, basing their findings on medical records, laboratory reports and current actuarial tables.
There are two basic roles for viatical settlement companies: providers, who buy the policies themselves and hold them as the named beneficiary thereunder, and brokers, who act as intermediaries between viatical settlement providers and viators by performing underwriting functions, and negotiating a fee to be paid by the viatical settlement provider.
The code provides the following safe harbors for payments received from the insurance company and from Viatical settlement companies.
People who are HIV-positive] need to accept that they might be too healthy to get a viatical settlement today.
31, 1996, viatical settlement companies will be able to pay out a percentage of the policy's face value to the policyholder, assume responsibility for premium payments, and become the policy's beneficiary.
At the same time we are working with regulators to ensure that any amendments to the model law do not halt legitimate insurance financing or legitimate life or viatical settlements in which policyholders who have properly obtained coverage to protect their families or businesses no longer need it and sell their policies.
A viatical settlement is a sale of a life insurance policy by a terminally ill patient to investors.