Viatical settlements involve the sale of a life insurance policy. If you have a terminal illness, you may consider selling your policy to a viatical settlement company for a lump sum cash payment. The viatical settlement company, in turn, may sell the policy to a third-party investor. This investor becomes the beneficiary of the policy, pays the premiums, and collects the face value of the policy after your death.
Before you make any major changes regarding your policy, talk to someone whose advice and expertise you can count on - a lawyer, an accountant, an insurance agent, or a good friend.
Investigate Your Options
Other options exist for people with terminal illnesses when financial needs are critical. For example, you may consider a loan from the original beneficiary of your life insurance policy or accelerated benefits on your life insurance policy. Many life insurance policies in force nationwide now include an accelerated benefits provision. Companies offer anywhere from 25 to 100 percent of the death benefit as early payment, but policyholders can collect these payments only under very specific circumstances. The amount and the method of payment vary with the policy.
If you own a life insurance policy, call your insurance agent or company to find out whether your life insurance policy allows for accelerated benefits or loans, and how much it will cost. Some insurers add accelerated benefits to life insurance policies for an additional premium, usually computed as a percentage of the base premium. Others offer the benefits at no extra premium, but charge the policyholder for the option if and when it is used. In most cases, the insurance company will reduce the benefits advanced to the policyholder before death to compensate for the interest it will lose on its early payout. There also may be a service charge.
Financial Implications
If you sell your policy to a viatical settlement company, you may owe federal capital gains tax on the difference between the payment you receive and the amount you've paid in premiums. You also may owe state tax, although several states, including California and New York, have made these settlements tax-free.
Collecting accelerated benefits or making a viatical settlement also may affect your eligibility for public assistance programs based on financial need, such as Medicaid. The federal government does not require policyholders either to choose accelerated benefits or cash in their policies before qualifying for Medicaid benefits. But, once the policyholder cashes in the policy and receives a payment, the money may be counted as income for Medicaid purposes and may affect eligibility.
Any decision that affects your life insurance benefits can affect the people who care for and about you. You may want to contact the following organizations for more information.
Contact Information
Contact the Indiana’s Attorney General
Affording Care
429 E 52nd St, Unit 4-G
New York City, NY 10022-6431
American Council of Life Insurance
1001 Pennsylvania Ave., N.W.
Washington, DC 20004-2599
National Association of Insurance Commissioners
444 North Capitol St., N.W.
Washington, DC 20001
National Association of People With AIDS
1413 K Street, N.W.
Washington, DC 20005
National Viatical Association
7910 Woodmont Ave., Suite 1430
Bethesda, MD 20814
North American Securities Administrators Assoc.
555 New Jersey Ave., N.W.
Washington, DC 20001
Viatical Association of America
1200 19th St., N.W. Suite 300
Washington, DC 20036
The Federal Trade Commission (FTC) is an independent agency that seeks to protect the public against unfair, deceptive, and fraudulent advertising and marketing practices through law enforcement and education efforts. For a complete list of free FTC publications, write:
Best Sellers
Public Reference
Federal Trade Commission
Washington, D.C. 20580
(202) 326-2222
For TDD, call (202) 326-2502. Or use the Internet for on-line access to FTC consumer and business publications.
The FTC Consumer Line is located on the Internet at CONSUMER.FTC.GOV or through the World Wide Web at http://www.ftc.gov/.