people on the street have no idea what a
viatical settlement is and in our opinion,
hopefully they never will.
Somewhere between CDO's and
reverse mortgages, the sophisticated financial world
of viatical settlements and life
insurance exist. Let's take a look
at what they are and how they work.
first thing to understand is that you
can think of term life insurance as an
asset but one that isn't vested yet.
This means it will be an asset in the
future...at the time of payout.
This assumes that you keep the policy in
effect by paying the premium of the
policy according to the requirements of
the life insurance company. The
trigger that creates the asset
unfortunately is the death of the
insured. Now that we have a good
grasp at the "value" or asset qualify of
term life insurance policy, let's look
at viatical settlements.
may sound morbid but the essence of a
viatical settlement is usually that the policy
owner (which is usually the insured as
well) has been diagnosed with a fatal
disease. In light of this, the
life insurance policy owner can opt to
sell the policy "proceeds" for life
benefit in advance to a third party.
There are many twists and turns to the
whole process as the viatical settlement
is a separate contract in itself but
the above description is the core instrument. Why
would a person enter into such an
agreement and what's the downside if
There are many reasons the person may
sell his/her life insurance "asset" to a
third party. They may need the
funds now to pay for medical bills
associated with their illness. The
needs may have changed to where the
traditional income replacement
life insurance is no longer needed.
The owner may want to use the money
while still alive...again, keep in mind
that viatical settlements are almost
always tied to a person who has a
short life expectancy. There are
also many people who have life insurance
policies through employers but do not
have dependents such as spouses and/or
children. A viatical settlement
might make sense in this regard.
So what is the downside?
The person who sells their life
insurance policy will not get the full
face value. In fact, the policy
can be sold at a pretty steep discount
depending on the situation.
There's an entire secondary market for
life insurance policies via viatical
settlements. Essentially the
purchase the life insurance
policy on the other side of the
transaction are typically investors.
There are usually salespeople or brokers
that take commission to bring these
sides together. On one hand, this
market is needed to provide both buyers
and sellers of life insurance policies
but it also is a cost and that means the
person selling the life insurance policy
receives less. Maybe it's a
necessary evil but it's still downside
to the entire transaction.
Our focus is on the benefits of term
life insurance in its traditional aims
such as income replacement over a long
period of time. Viatical
settlements are not our focus but as
with all thing life insurance, we want
our customers and visitors to have a
well-rounded base of information
including the strange world of term life
insurance and viatical contracts.