Subject: Insurance - Viatical Settlements

Last-Revised: 19 Aug 1998
Contributed-By: Gloria Wolk (, Chris Lott (contact me)

A viatical settlement is a lump sump of cash given to terminally ill people (viators) in exchange for the death benefits of their life insurance. Along with so much of the English language, the name has its origins in a Latin word, viaticum, which means provisions for a journey.

These settlements are attractive to a viator (seller) because the person gets a significant amount of money that will ease the financial stress of their final days. Viatical settlements are attractive to investors for their potentially high -- but not guaranteed -- rates of return.

The way it works in the simplest case is the investor pays some percentage of the face value of the policy, let's say 50% just to pick a number, and in return becomes the beneficiary of the policy. The investor is then responsible for paying the premiums associated with the life insurance policy. Upon the demise of the viator, the

investor receives the death benefit of the life insurance policy. If the viator dies shortly after the transaction is completed, the investor makes a large amount of money. If the viator survives several years past the predicted life expectancy, the investor will lose money.

Like any other deal, there are risks to both parties. For the viator, the main risk is settling at too low a price. For the investor, there are risks of not receiving the full death benefit if the insurance company goes bankrupt, not receiving any death benefit if the insured committed fraud on the insurance application, etc.

As of this writing, a few honest and a number of less-than-scrupulous companies market viatical settlements to viators and investors. Be careful! This investment is not regulated, so there is little or no protection for investors.

Here are a few tips for potential viators.

  • Are you holding back from medical treatment, thinking this will give you a larger viatical settlement? Don't. It won't get you more money. Viatical providers take into account Investigational New Drugs (INDs) when they price policies. Even if you never took any and don't plan to, they expect viators will try anything that gives hope, and they price accordingly.
  • Was your policy resold by the viatical company? If so, you have no obligation to a second buyer -- unless you signed an agreement to extend obligations to future owners. This is like selling a car: If you sell the car to B and B resells it to C, you have no obligation to C.
  • Be sure to check with your insurer to find out if your policy includes Accelerated Death Benefits. If so, and if you qualify, you will get much more money -- and it will be paid faster. This applies to some group term life as well as individual policies.
  • Are you are a member of a Credit Union? Credit Unions may be a source of information about and referrals to licensed viatical providers.
  • Don't apply to only one viatical company -- even if the referral was made by your doctor, lawyer, insurance agent, social worker, or credit union. If you ignore this advice, you're likely to get thousands of dollars less.

Here are a few tips for potential investors in viatical settlements.

  • Are you thinking of using your IRA for viatical investments? Don't. No matter what viatical sales promoters tell you, life insurance as an IRA investment is prohibited by the Internal Revenue Code. And, if you have a self-directed IRA, you are fully responsible for investment decisions.
  • Are you thinking of buying a policy that is within the contestability period? Don't. If the viator committed fraud on the application and the insurer discovers this, you could be left with nothing more than a return of premiums.

Gloria Wolk's site offers much information about viatical settlements.

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