Article 7 of 7 in What to Know About Life Insurance Beneficiaries
If you or a loved one is terminally ill, you may need money now for care, medical bills or perhaps to live a quality of life before the end. Viatical settlement companies are firms that will buy your life insurance policy if you or your love one is terminally ill. They then will become the effective owners and beneficiaries and receive the life insurance payout when the insured dies. The viatical company's hope is to price the settlement at a price that will be attractive to the insured and also allow the viatical company to make a profit.
If you are terminally ill with a life insurance policy, you'll be offered only a fraction of the face value of your life insurance policy to sell it, but you'll get that fraction NOW rather than have your beneficiaries get the face value after your death. The buyer of the policy will cover all its costs and risks (i.e. the insured might live much longer than expected) until the insured person eventually dies and the buyer collects the full death claim value.
TIP: A company purchasing a life insurance policy is essentially betting that the insured will die before the policy lapses or becomes unprofitable for the company to own due to the premium payments it must maintain. While this is an unpleasant thought, the benefit of immediate cash to enjoy during the end of life is not.
How Viatical Settlements Work
To be eligible for a viatical settlement, the patient needs to have life insurance and be considered terminally ill. The percentage of that overall value of your life insurance policy you will receive (the viatical settlement amount) is determined by actuaries who calculate what they are willing to pay for your life insurance policy and yet make a large enough profit after paying you as well as continue paying premiums for some indefinite period until the insured dies. This process essentially projects when the insured will pass, calculates how much it will cost to own the policy until then, and assigns a value that makes sure the company purchasing the policy makes money. The viator, or the insured, signs a form to make an absolute assignment of the policy which means all ownership rights are transferred to the buyer. The form is sent to the insurance company which will notify you and the buyer when the assignment has been completed.
Calculating the Viatical Sale Price
The price a policy owner receives is based a combination of factors:
The Terms of Your Insurance Policy
Once all these factors have been reviewed and your individual circumstance are taken into consideration (your health, your life expectancy) viatical settlement companies will then consider the actual terms of your life insurance policy. These terms differ depending on whether you policy is a whole life, universal life or term life. Here are some factors that may be considered:
Based on this information, the prospective buyer determines how much it is willing to pay the insured for the policy. Not all prospective buyers or life insurance viatical settlement companies come to the same conclusion. This creates variations in the settlement amount. Make sure you consult a viatical life insurance attorney before entering into a viatical agreement. Contact an attorney to review the terms of your viatical settlement to make sure you are being treated fairly. This also holds true if you are buying a viatical settlement. A lawyer well trained in these settlements can ensure that your settlement is fair and the terms are equitable for both sides.
Things to Consider
Before you sign your viatical contract make sure you think through the point below. Then contact a viatical attorney who can further advise you of your options.
TIP: Before signing, there are things you should consider. Making an informed decision about your viatical settlement is the best way to make sure it is the right decision for you and your family. Consult with an attorney who can tell you if you are getting a fair deal!
Can You Change Your Mind in a Viatical Settlement?
Before you enter into any agreement, you should be absolutely sure this is what you want, however, if you or the potential viator has a change of mind before the contract is finalized, you can simply stop the process. Further, after a contract has been finalized and the viator has received the funds, he or she can cancel the agreement in most states within a stipulated time period (often 15 days or 30 days). To cancel, the viator returns the money by sending a bank check to the viatical company. The check should be sent by certified mail (with return receipt). The receipt will provide confirmation that the company received it in the time frame to cancel.
Although these settlements can provide the needed monetary benefit during the end of life, it can not be stressed enough that having a qualified attorney review your viatical settlement contract prior to signing is the best way to ensure that you are getting the most equitable deal for your life policy. You can bet the group purchasing the policy will have an attorney, so it is a good idea for you to have one as well. Click here to use the Free Advice legal center to contact a an estate planning attorney in your area. Consultations are free, and having legal advice to help you with your end of life planning can be invaluable.
Read more articles about life insurance beneficiaries by clicking here.