What is a Viatical Settlement?

A viatical settlement allows a person to sell his or her life insurance policy. The amount of the sale is typically greater than their invested amount, but lower than the face value of the policy. The owner of the life insurance policy receives immediate cash. The purchaser holds the life insurance policy until the death of the seller. When the original holder dies, the investor who purchased the policy gets the proceeds of the policy. 

Evolution of Viatical Settlements

Viatical settlements are most often used by individuals with a short life expectancy. When they purchased the policy, they may have had a longer life expectancy, but that was cut off due to illness or injury. People diagnosed with terminal illness are the most common candidates. If a person expects to die soon and does not have dependents that need the policy, then they can sell the policy and enjoy the money for the remainder of their years.

This practice became popular in the 1980s in the United States when the AIDS epidemic broke out. At the time, most people with AIDS died relatively quickly and did not have families that would receive a death settlement. The practice has decreased in popularity since the 80s, but is still a viable practice.

Viatical Settlement Regulation

The government regulates all public investment options. In the 1980s, Viatical settlements were bought up in a large amount by asset managers. These managers may have pushed off the investment on a private investor who was not clear on the opportunity, since it was relatively new. The government also knew very little about the potential profit from these settlement options. As a result, there was a huge industry that was largely unregulated and had a potential to crash. Since that time, the government has more experience with viatical settlement options. They are more regulated and generally reported to be used less today. Viatical Settlements tend to be used less because life expectancy in the United States is longer than it used to be.

Viaticial Settlement Advantages

These settlement opportunities offer advantages to both the viator (person who is dying) and the investor (person who purchases the policy). The viator is able to get a quick influx of cash to enjoy his or her final years or life. The investor makes a profit in the longer-run, but the maturity of the investment should still be relatively short. Ultimately, the popularity of these options first arose because they were a good deal for both parties. In many cases, people with terminal cancer still use these settlements to live out their final days in peace.

Viatical Settlement Issues

The settlements rely on the probably that the original holder of the policy will die soon. Some people may be uncomfortable with this idea. Ethically, many investors will not want to take a chance on the fact another person will die in the near future. Even if they are comfortable with it, investors are taking a chance on the fact the person will not recover. If the person does recover, say he or she overcomes cancer, then the investor is left holding onto the insurance policy and continuing to pay into it for years. An investor can end up contributing far more than the pay out if the individual lives a long life.

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