What Is a Life Settlement vs a Viatical Settlement
Life insurance policies aren’t always necessary as people age. And selling the policy to get a cash payout may make the most sense. But is a life settlement or a viatical settlement the best choice?
For older adults, determining the right answer isn’t easy, and each option brings different requirements and payout percentages. Keep reading as we unpack the differences between life settlements and viatical settlements.
Considering a Viatical Settlement
A viatical settlement is meant for individuals facing chronic or terminal illnesses. In this scenario, an individual sells their life insurance policy for a cash payment of around 50% or more of the death benefit.
The buyer typically is an investor-backed company that specializes in buying life insurance policies. It’s important to work with a reputable settlement company, such as Abacus Life Settlements, to better understand how viatical settlements work and how selling a life insurance policy can provide access to funds as a legal path for policyholders.
One significant benefit of a viatical settlement is that the cash payout tends to be higher, and it may be tax-free. This is because the seller may have a limited lifespan and need the money to cover costs related to medical treatments or hospice care. Individuals can expect to receive their money quickly, as well.
Looking into a Life Settlement
With a life settlement, individuals will sell their policy for a cash value that’s lower than the death benefit but greater than the cash surrender amount. This option is best for individuals over the age of 65 who don’t feel they need their policy anymore.
The third-party buyer will assume all premium payments after the sale. Because the individual selling the policy may live longer, the payout amount will usually be around 30% or lower. The buyer may wait years or decades to receive the death benefit.
Life settlements are an ideal way to help cover lifestyle costs, such as nursing care or assisted living, as well as medical procedures and prescriptions. It may take longer to receive the funds, however, and those funds could be taxable.
Comparing the Options
When weighing life and viatical settlements, it’s smart to compare the differences. With viatical settlements, for instance, you’ll need to verify that you’ve received a serious diagnosis.
By contrast, a life settlement doesn’t require proof of a chronic illness. Seniors in their 60s or 70s typically pursue life settlements.
Viatical settlements offer quicker payouts that tend to be higher. With life settlements, you could receive a payment as low as 10% of the death benefit. Both options can give policyholders access to critical funds to cover medical costs that come with aging.
Making the Right Decision
As you try to make the best decision for your circumstances, consider your current health status first. If you’re not facing a terminal illness, a life settlement is your choice. But if you’re facing chronic issues, a viatical settlement comes with a faster turnaround time.
Consult with a licensed professional, too, to understand the math involved in the sale. Know the value of your policy, and be clear if there will be fees or taxes involved in the transaction. Also, confirm that personal details about your health and finances will be secure during the settlement process.
Planning for Senior Care
When you’ve held onto a life insurance policy for decades, you’ll want to consider how it can help you most as you enter your senior years. Cashing it out in the form of a viatical or life settlement is an excellent way to cover costs for health care and other future needs.
Opt for a viatical settlement when you want access to money quickly due to a terminal illness. And turn to a life settlement when you have more flexibility but want to plan for upcoming expenses. Work with a professional consultant to help arrive at a decision that meets your needs.