What happens under a viatical settlement?

Asked By: Hercules Polk | Last Updated: 14th June, 2020
Category: personal finance life insurance
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Viatical settlements allow life insurance policyholders to sell their policies to investors for an immediate cash benefit. In return, the buyer of the viatical settlement becomes the new owner of the life insurance policy, pays future premiums and collects the death benefit when the insured dies.

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Furthermore, how does a viatical settlement work?

A viatical settlement is when someone who is terminally or chronically ill sells their life insurance policy to a third party. The policy seller receives a lump sum cash payout that is more than the cash surrender value, but less than the death benefit. A viatical settlement is one of them.

Likewise, is a viatical settlement protected from creditors? Also, a viatical settlement may be considered income for tax purposes. Finally, a viatical settlement may be subject to the claims of creditors. On the other hand, a life insurance policy's death benefit proceeds are generally not income taxable, nor subject to the claims of creditors.

Beside this, which of the following correctly describes what happens under a viatical settlement?

A viatical settlement takes place when the insured of a life insurance policy (also known as the viator) sells their life insurance policy to a third party (the viatical settlement provider) for a lump sum cash payout—this payout is less than the death benefit, but more than the cash surrender value.

How much do viatical settlements pay?

In general, the larger the life insurance policy size, the larger the life settlement offer. This is because the death benefit payout to the investor is larger. So an average life settlement offer on a $100,000 policy may be around $20,000 and an average offer on a $1,000,000 may be around $200,000.

31 Related Question Answers Found

What is the difference between a viatical settlement and a life settlement?

Should You Get a Life Settlement or a Viatical Settlement? A viatical settlement is the sale of an existing life insurance policy at a discount from its value for cash. A life settlement is a trade between the policyholder and the purchaser. This type of settlement is designed for those with longer life expectancies.

Are viatical settlements taxable?

When you receive a viatical settlement, the funds are tax-free. In 1996, the Health Insurance Portability and Accountability Act (HIPAA) exempted viatical settlement proceeds from income and capital gains tax. Prior to the implementation of that law, viatical settlements were taxable.

Who pays all future premiums after the viatical settlement?

Viatical settlements allow life insurance policyholders to sell their policies to investors for an immediate cash benefit. In return, the buyer of the viatical settlement becomes the new owner of the life insurance policy, pays future premiums and collects the death benefit when the insured dies.

Who does a viatical settlement broker represent?

Viatical settlement broker" means a licensed agent who acts on behalf of a viator and for a fee, commission or other valuable consideration offers or attempts to negotiate viatical settlements between a viator and one or more viatical settlement providers.

What is a viatical settlement transaction?


A viatical settlement (from the Latin "viaticum") is the sale of a policy owner's existing life insurance policy to a third party for more than its cash surrender value, but less than its net death benefit. Such a sale provides the policy owner with a lump sum.

How do you buy life settlements?

There are three basic ways that Life Settlement investments are bought and sold:
  1. Direct Purchases of Life Insurance policies. This requires a large outlay of cash along with expertise to buy the right policies.
  2. Direct Fractional Life Settlements.
  3. A Life Settlement Private Equity Fund.

How do I invest in viatical settlements?

A viatical settlement allows you to invest in another person's life insurance policy. With a viatical settlement, you purchase the policy (or part of it) at a price that is less than the death benefit of the policy. When the seller dies, you collect the death benefit.

What is the typical time limit on life expectancy for a viatical settlement candidate?

The time limit of life expectancy for a Viatical Trust candidate is normally a life expectancy of two years or less. Bill and Janet are both insured under a whole life policy that is designed to help cover federal estate taxes by paying upon the death of whichever of them is the last to die.

What are the four most common settlement options?

The following are the most common options available:
  • - Lump Sum. The beneficiary takes the full amount of the death benefit as a single settlement.
  • - Interest Only.
  • - Fixed Period.
  • - Life Annuity.
  • - Life Annuity with Period Certain.

When can viatical settlements be issued?


In a viatical settlement, the insured has been diagnosed terminally ill, generally with a life expectancy of 24 months or less. Similarly, the IRS uses a 24-month time frame when determining whether the proceeds of a viatical settlement paid to an insured are exempt from taxation.

What is the primary feature of a viatical settlement?

(The primary feature of a viatical settlement is the prepayment of a reduced death benefit.) What is the primary feature of a viatical settlement? (One of the major tax advantages of life insurance is that the beneficiary generally does not pay income tax on the proceeds.)

Which type of settlement option pays the beneficiary over a specified time frame?

Fixed Period Option
With a fixed period settlement, your beneficiary receives payments in equal amounts over a specific period of time. If the beneficiary dies before the time period is over, the remaining balance will pass to a secondary beneficiary.

What does the word viatical mean?

A viatical settlement is an arrangement in which someone with a terminal disease sells his or her life insurance policy at a discount from its face value for ready cash. The buyer cashes in the full amount of the policy when the original owner dies. A viatical settlement is also referred to as a life settlement.

What is a life settlement contract?

A life settlement refers to the sale of an existing insurance policy to a third party for a one-time cash payment. After the sale, the purchaser becomes the policy's beneficiary and assumes payment of its premiums. By doing so, he or she receives the death benefit when the insured dies.

What is a Viator?


A viator is a person who has been diagnosed with a terminal or life-threatening illness and decides to sell their life insurance policy to take advantage of a portion of the death benefits.

Which of the following settlement options in life insurance is known as straight life?

Correct! The life-income option, also known as straight life, provides the recipient with an income that he or she cannot outlive. It pays the benefit while the beneficiary is alive; however, the payments stop at the beneficiary's death. Interest only is a settlement option.

What settlement option in life insurance is known as straight life?

straight life income option. A life insurance settlement option where a beneficiary receives periodic payments which end immediately upon the beneficiary's death.