If you’re looking to sell your life insurance policy, you have likely encountered the concept of a viatical life settlement. While such a life settlement can provide quick cash, it does so at a cost—and for some, that price may be too high.
What is a Viatical Settlement?
Weighing the pros and cons of a viatical settlement first comes down to understanding what it is. A viatical settlement involves the sale of a life insurance policy to a third party. This type of life settlement typically occurs when a person is facing a terminal illness and would rather have a lump sum of money from his or her life insurance while still living, as opposed to passing the death benefit down to a beneficiary.
This arrangement, also called a senior settlement, usually results in a payment that is higher than the cash value of the policy, yet less than the death benefit. Essentially, the policyholder is compromising on the policy’s value in order to be able to get a rapid payoff. Often, such money may be needed to ease the burden of medical bills, or could even help a person live out his or her final months in comfort. However, a viatical settlement isn’t the only option for those looking to draw value from a life insurance policy.
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What Other Options Are There?
Loans on life insurance can also provide financial assistance to cancer patients and others in need. Such options, however, don’t involve the full surrender of a life insurance policy, but rather a temporary transfer, which means the holder and his or her family can ultimately regain control, and benefits of, the policy.
Life Credit’s Living Benefit Loans, for instance, operate under this type of arrangement. Those with a death benefit of at least $100,000 are eligible for the loans, which provide up to half of the benefit to those facing a cancer diagnosis and seniors. Program participants can use these funds, which are typically available in a matter of days, at their discretion, allowing them to confront medical other challenges without the stress of financial strain. The agreement allows Life Credit to take over the policy, including paying all premiums, and the policy holder resumes ownership once the loan is paid.
A life insurance policy should have value during life, but policy holders need to carefully consider if they want to permanently part with their investment before making that decision.