If you have been diagnosed with a terminal disease and want to find a way to generate more money, be it to cover your medical bills or simply to enhance your quality of life in some subjective way, viatical settlements are not your only option. And although they may be uniquely well-suited to meet the needs of some, they are not the best option for all people diagnosed with a terminal illness (or for all investors, for that matter).
Accelerated Death Benefits (ADBs) are a provision of many life insurance policies which allow the insured to receive some of his or her death benefits right away, if they meet the eligibility requirements (such as having a terminal illness). The beneficiaries still receive a death benefit, albeit reduced by the amount of the advance. In response to the popularity of life and viatical settlements, more and more life insurance policies are making the option of accelerated death benefits available. They may be automatically included in a policy, or they may be purchased as a rider. Sometimes, you can even add accelerated death benefits to a policy after you are diagnosed with an illness.
Another possibility is taking out a regular loan from a bank. Assets such as art, jewelry or other valuables can be sold, or used as collateral in securing a loan. If you own a home you may be able to get loan against it (a home equity loan or second mortgage). You can set up a pseudo-viatical situation with a friend or family member--borrowing money in exchange for naming them the beneficiary of the policy. Also, whole life insurance policies build cash value over time, which you may be able to use.
Viatical settlements, while extremely useful for some people, are indeed not the only alternative.
Can I change my mind?
If the investor changes his mind about the investment, he is not legally obligated to keep the policy—but if he gives it up, he has no claim to benefit from the policy. And, an individual investor will find that the company that sold him the policy will seldom take it back.
If the viator changes his mind, he may be able to get his policy back, depending on the whether his state regulates the viatical industry. In states where it is regulated, the viator can change his mind within fifteen days, even if he has already received payment. Needless to say, he is obligated to refund the payment in full.
I could definitely use some money right now, but I would also like to leave something to the beneficiaries of my policy after my death. Can I sell part of my policy?
I’m covered by a group life insurance policy. Can I still viate?
The only person with a legal right to sell the policy is its owner—and if you are covered by a group policy, you are not, technically, the owner. However, if you can secure the consent of the group you can probably still sell your policy.
What are “living benefits”?
”Living benefits” is a general term which refers to both proceeds from a viatical settlement as well as accelerated death benefits.
What is a “life settlement”?
The term “life settlement” is often used interchangeably with “viatical settlement”, but it refers specifically to the sale of a life insurance policy by a person who is elderly but otherwise in good health. These have actually been extremely popular among senior citizens, and now comprise about 80% of the viatical and life settlement industry taken as a whole, according to the Viatical and Life Settlement Association of America.
How long does this process take?
From the viator’s perspective, not very long. After signing all the paperwork, the insurance company will need a day or two to make the requisite changes in the named beneficiary of the policy, so the purchaser should send the money (via the escrow account) within two or three days. From the start of the application process to the receipt of payment, the whole process generally takes 4-8 weeks. From the investor’s perspective, the time it takes to receive the returns on the investment is entirely contingent on the lifespan of the person.
What are some of the factors in assessing the value of my insurance policy?
An investor will decide how much of a policy’s value to pay a viator up front based on a number of factors beyond simply the face value of the policy. The credit rating of the insurance company, interest rates, whether there are any outstanding claims on the policy, how long the patient has held the policy and the patient’s prognosis all come into play.
I heard about something called clean sheeting. What is that?
“Clean sheeting” has been a major problem in the viatical industry. This is a practice in which terminally ill patients conceal or lie about their medical condition in order to get a life insurance policy which they then can viate. Unscrupulous brokers are often accomplices in this practice.
Life insurance companies can protect themselves against being defrauded in this way by the use of “contestable clauses,” which gives them the right to call into question the validity of a life insurance policy they have issued in the past two years. The is why recently purchased policies may bring a lower price from investors in a viatical transaction.
Another term often used in conjunction with “clean sheeting” is “wet ink policies.” This is a policy which is viated very soon after it is issued (i.e., before the ink gets a chance to dry). As it is not that common to receive a terminal diagnosis immediately after purchasing life insurance, a wet ink policy often has been clean sheeted.
What if my health improves after I viate?
Assuming you disclosed everything at the time of the settlement, you are don’t need to do anything.
Viatical settlements have many proponents and many critics, on the part of viators and of investors. However, the industry has established itself as important. People who think they might be a good candidate to participate in a viatical settlement, as a viator as an investor, should seek more information. However, they should proceed with caution and with the assistance of informed professionals.