Viatical Settlement Contract: What It Is and How It Works

When facing a terminal illness, financial concerns can become a burden for patients and their families. In some cases, a viatical settlement contract can be a solution. This article explains what a viatical settlement contract is and how it works.

What is a viatical settlement contract?

A viatical settlement contract is an agreement between a terminally ill patient and a third-party investor. The patient sells their life insurance policy to the investor for a lump sum payment. This payment is usually a percentage of the policy`s face value, depending on the patient`s life expectancy.

How does it work?

When a patient with a life insurance policy is diagnosed with a terminal illness, they can choose to sell their policy to a viatical settlement company. The company will evaluate the policy and offer the patient a lump sum payment. This payment is usually between 50-80% of the policy`s face value.

The viatical settlement company will then become the policy`s beneficiary and will be responsible for paying the policy`s premiums. When the patient passes away, the viatical settlement company will receive the death benefit from the insurance company.

Who benefits from a viatical settlement contract?

A viatical settlement contract can provide financial relief for terminally ill patients and their families. The lump sum payment can be used to cover medical expenses, pay off debts, or improve the quality of life. In some cases, the payment can be enough to fund a hospice stay or a final trip.

Investors also benefit from viatical settlements. They can purchase policies at a discounted rate and receive a return on their investment when the patient passes away. However, investors should be aware of the risks involved in viatical settlements. The patient`s life expectancy can be difficult to predict, and the investment may not generate a return for many years.

What are the risks?

Viatical settlements are not without risks. Patients should be cautious when considering a viatical settlement contract and should be aware of the potential drawbacks.

Firstly, patients should understand that selling their life insurance policy means they will no longer have coverage. This can be an issue if the policy was intended to provide financial security for loved ones after the patient`s passing.

Secondly, patients should be aware that the lump sum payment received in a viatical settlement may be taxable. It is important to consult with a tax professional to understand the tax implications of a viatical settlement.

Finally, patients should be aware that the viatical settlement industry is not regulated in all states. Patients should research the viatical settlement company and ensure they are working with a reputable and trustworthy organization.

In conclusion, a viatical settlement contract can provide financial relief for terminally ill patients and their families. However, patients should carefully consider the risks and benefits before entering into a viatical settlement contract. Consulting with a financial advisor and tax professional can help patients make an informed decision.