The Fundamental Difference
Living Benefit Loan
You borrow against your death benefit. You keep your policy, keep your beneficiaries, and the loan is repaid from the death benefit when it pays out.
- ✓ Keep policy ownership
- ✓ Beneficiaries receive remaining benefit
- ✓ Funded in 3 days
- ✗ Up to 50% of death benefit
- ✗ APR up to 35.99%
Viatical Settlement
You sell your policy to a third-party investor. They become the new owner and beneficiary. You get a lump sum. Your family gets nothing from the policy.
- ✓ Larger lump sum (50-80%)
- ✓ No repayment, no interest
- ✓ May be tax-free (terminal illness)
- ✗ Lose ALL coverage
- ✗ Takes 2-4 months
Detailed Comparison
| Factor | Living Benefit Loan | Viatical Settlement |
|---|---|---|
| How much you receive | Up to 50% of death benefit | 50-80% of death benefit |
| Speed | 3 business days | 2-4 months |
| Keep your policy? | Yes | No — policy is sold |
| Beneficiaries receive? | Remaining death benefit | Nothing |
| Credit check? | No | No |
| Monthly payments? | None — repaid from DB | N/A — not a loan |
| Tax treatment | Loan — generally not taxable | May be tax-free (terminal) |
| Process complexity | Simple application | Medical records, bidding, legal review |
| Third parties involved | Life Credit only | Broker + institutional buyers + legal |
| Term life eligible? | Yes | Sometimes (convertible) |
| Reversible? | Can repay the loan | No — sale is final |
| Interest/Fees | APR ≤35.99% + 3% origination | Broker takes 10-30% commission |
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When Each Makes Sense
Choose a Living Benefit Loan when:
- → You want to keep your policy and protect your beneficiaries
- → You need money fast (days, not months)
- → You have dependents who rely on the death benefit
- → You may want to repay the loan if your situation improves
- → You have term life or group life (not eligible for most settlements)
Choose a Viatical Settlement when:
- → You need the maximum possible cash amount
- → You don't have dependents who need the death benefit
- → You can wait 2-4 months for funds
- → You have a terminal or serious illness diagnosis
- → You'd rather have a clean break with no ongoing loan
Real-World Example
Scenario: A 62-year-old with a $400,000 term life policy diagnosed with stage III cancer.
Living Benefit Loan
- Receives: up to $200,000 (50%)
- Timeline: 3 business days
- Family receives: ~$200,000 minus loan balance
- Policy status: Active, owned by patient
Viatical Settlement
- Receives: ~$240,000-$320,000 (60-80%)
- Timeline: 2-4 months
- Family receives: $0 from policy
- Policy status: Sold to investor
Hypothetical example for illustration only. Actual amounts depend on specific circumstances.
Frequently Asked Questions
What's the main difference?
A Living Benefit Loan lets you borrow and keep your policy. A viatical settlement means selling your policy entirely — larger payout but you lose all coverage.
Which pays more?
Viatical settlements typically pay 50-80% as a lump sum. Living Benefit Loans provide up to 50% but your beneficiaries keep the rest.
Which is faster?
Living Benefit Loan: 3 days. Viatical: 2-4 months.
Are either taxable?
Viatical proceeds may be tax-free for terminal illness (IRC §101(g)). Loan proceeds are generally not taxable.
Can I do both?
Not on the same policy. Choose one path.
Related Guides
Further Reading
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