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 ?
Terminally ill policyholders also have the option to sell their policies to independent financial companies in the viatical settlements market.
One way to defraud the investor is to sell a viatical knowing that the insured lied about his or her health condition when applying for the policy, as did one Florida viatical settlement company.
The following is a basic overview of viatical settlements and the key questions that management and personnel dealing directly with residents might want to address.
Although viatical settlements may serve an altruistic purpose, both parties to the transaction make money.
The qualifications for a life settlement will differ far more dramatically from individual to individual than with viatical settlements, primarily because health condition, an essential element to a viatication, is not necessarily a critical factor in a life settlement.
By 1991, an estimated $50 million of viatical settlements had been sold.
Court of Appeals for the Fourth Circuit ruled that the McCarran-Ferguson Act, a federal law giving states authority to regulate insurance matters, also covers viatical settlements.
In addition, many states have extensive provisions regulating viatical settlements.
Many states have adopted laws and regulations covering life settlement transactions and viatical settlements.
The act makes no distinction between viatical and life settlements and refers to all settlements as viatical settlements.
The federal income tax treatment of these accelerated death benefit payments or Viatical settlements is an issue for the insured or his or her personal representative, who is responsible for filing the decedents final income tax return.
In the past viatical settlements have been a godsend for many people with AIDS, enabling them to live out their final days in comfort and dignity.