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 ?
Receipt of viatical settlement proceeds could disqualify the recipient's eligibility for certain means-based entitlement programs such as Medicaid or other government benefits.
In viatical settlements (and in the early history of life settlement pricing), the life expectancy (9) of the insured was considered the most critical (often the only) variable used in determining the secondary market price of the policy as this represents the expected life length of the insured when the life insurance policy was sold to the third party as a life settlement (the time to payment for the investor).
A viatical settlement is a transaction involving a terminally or chronically ill insured.
Since most residents and their families are probably unfamiliar with viatical settlements, it is in their best interests - and those of management, social workers and others in direct contact with residents - to make them aware of this financial resource.
TABLE 1 VLSI Companies Contributing Observations to Index Annual Report Range VLSI Company From To American Life 1994 1996 Dignity Partners 1993 1995 Habersham 2007 2008 Kelco 1995 2001 Legacy Benefit 1992 2005 Life Benefactors 1993 1997 Life Funding 1993 1996 Life Settlements 1999 2002 Lifetime Entitlements 1994 1996 Lifetime Options 1993 1995 National Benefit 1994 1995 Neuma 1993 2009 Portsmouth 1996 2008 Viatical Settlements 1993 1996 Viaticare 1994 2001 Viaticus 1994 2001 WM Page 1995 2009 Note: This table lists the 17 Viaticals-Life Settlements (VLSI) companies that filed annual reports with the New York State Insurance Department from which we extracted data on their individual VLSI holdings.
Basics of viatical settlements. Retrieved December 15, 2009, from http://www.apla.org/programs/benefits/viatical.html.
Currently, 39 states and Puerto Rico regulate life settlements, and the National Association of Insurance Commissioners (NAIC) recognizes them as a viable solution (NAIC, "NAIC Adopts Viatical Settlements Model Act Revisions," News Release (June 4, 2007), www.naic.org/Releases/2007_docs/viatical_settlements_model.htm).
Life settlements are also variously referred to as "senior settlements," "high net worth settlements," and "high net worth transactions." In contrast, the term "viatical settlement" is used to describe the sale of life insurance contract when the insured is terminally or chronically ill and expected to die within two years (see below).
The law currently regulates viatical settlements, transactions involving the sale of life insurance policies by insured individuals who have a catastrophic or life-threatening illness or condition.
(91) The selling of a life insurance policy by a terminally ill policyholder on the secondary market became known as a "viatical settlement." (92) Viatical settlement transactions, however, are not insurance contracts, and as such, are not part of the "business of insurance." (93) For the purposes of the Securities Act, the Securities and Exchange Act, and federal securities regulation, viatical settlements in certain instances qualify as investment contracts, and therefore as securities.
HOW LIFE SETTLEMENTS DIFFER FROM VIATICAL SETTLEMENTS