Mayor's Office of Employee Assistance
When to Cash In: Viatical Settlements
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If the person you care for is diagnosed with a terminal illness, he or she may want to receive money from a life insurance policy before they die to help cover costs near the end of their life. There are several options available; the
most common are accelerated benefits (sometimes also called living benefits)and viatical settlements.
Accelerated benefits are granted by a
life insurance company; they are sometimes sold as part of an original policy and sometimes given as a rider to your existing policy. With accelerated benefits, the policyholder will receive anywhere from 25 to 100 percent of the face value of the policy before death. These benefits often involve specific conditions and
requirements; check with the life insurance company to find out about what it offers and under what conditions. Sometimes companies
will add a rider to an existing policy for an additional premium. Others offer the rider at no cost until the policyholder decides to use it.
Viatical settlements involve the sale
of a life insurance policy to a viatical
settlement company; in return, the policyholder gets a lump sum payment. The viatical settlement
company may keep the policy or resell it to an investor; upon the policyholder’s death the new beneficiary (either the company or a thirdparty
investor) will collect the face value of the policy.
With a viatical settlement, the policyholder
may be required to pay a federal capital gains tax on the difference between the lump-sum payment
and the amount that has been paid in premiums. Some states also require state tax on viatical settlements. Consult with an accountant
or tax attorney to clarify any tax implications of a viatical settlement. A viatical settlement can also be counted as income, and it therefore
may affect the policyholder’s eligibility
Choosing a Viatical Settlement Company
After the decision has been made to
get a viatical settlement, help the
person you care for to choose a viatical
settlement company carefully. Here are some tips that can help you to make this decision:
Compare offers of several companies,
ideally three to seven.
Check with state insurance department
to verify the company or broker is licensed.
Don’t be pressured to make a quick
Confirm that the company is financially
Check with your state attorney general’s
office for complaints against the company.
Viatical Settlement Eligibility
Viatical settlement companies have varying rules regarding the life insurance policies that it will buy. Some common requirements of the companies and the people who invest in them include the following:
The policy has been held for at least
The policy has a large face value
Current or potential beneficiaries
provide a waiver
The policy is from a large, wellknown
and financially stable company
If the policy is from an employer, it
can be converted to an individual policy
The policyholder is terminally ill—
with death expected to occur within two years
The policyholder is willing to
release all medical records to the company.