08/04/2000

Viatical Settlements -- A consideration for the terminally ill.

A viatical settlement enables one to receive the death benefit from their life insurance policy before they die. Why would you want to do this? Hopefully, you will never have to consider this option. However, people are sometimes confronted with a fatal illness that has also wrought financial devastation. To alleviate their current financial woes it is possible to turn to the cash available from a life insurance policy via a Viatical settlement. This article will explain and explore the pros and cons of such a settlement.

In the unfortunate event that someone is facing a terminal illness that has placed their family in severe financial circumstances, they may want to consider tapping their life insurance policy before death. This is possible with the assistance of a viatical settlement company. A viatical company will purchase a life insurance policy at a discount from the actual value of the death benefit, if the insured has a terminal illness. The insured receives immediate cash from the viatical provider. At death, the viatical provider receives the death benefit from the insurance policy, not the original beneficiaries.

The amount paid by the viatical company will depend on the amount of the death benefit and the life expectancy of the insured. For example, someone diagnosed to live three more years might receive 40% of the death benefit. The shorter the life expectancy, the higher the payout percentage; the longer the life expectancy, the lower the payout.

This type of settlement should not be entered into lightly.

On the plus side, the viatical settlement can provide one with needed cash. If a family has exhausted all other resources, the viatical settlement may just be their last resource to right a sinking financial ship. If the life insurance death benefit is large, the settlement may also be the only source of significant cash available. The cash may just provide the financial support needed to alleviate the situation and provide some needed emotional and psychological relief at a very difficult time.

There are concerns with such settlements. One of the foremost concerns is the financial position of the heirs. The financial ship might be righted with the immediate cash bailout from the viatical settlement, but the heirs are left without the death benefit. If this benefit was an essential component of the family financial plan, the heirs may be facing future financial struggles. One must also consider the percentage payout. The viatical provider will most likely only offer in the range of 30 to 50 cents on the dollar. If this is a last resort, then maybe taking this "reduced death benefit" is a good strategy. However, if the money can be found form other sources, this reduced payout does not look attractive, especially if the insured passes away quickly.

An alternative to the viatical settlement is the viatical loan. A viatical loan allows one to tap into a percentage of the insurance policy, not forcing one to take a 100% settlement. A viatical loan company will issue the insured a line of credit based on the death benefit. The line of credit will come with an interest charge in the neighborhood of 16%. The insured can then use the money during the remainder of his or her lifetime to meet pressing financial obligations. Then, at the death of the insured, the principal and interest are repaid from the death benefit. The amount of the benefit over and above the amount repaid for the viatical loan (if any) goes to the original beneficiaries.

The viatical loan is a nice twist to the viatical settlement. It creates a avenue for receiving needed cash at present, but it allows you to decide how much you need. Furthermore, the loan options generally leaves some of the death benefit untouched so that beneficiaries will receive a portion of the proceeds intended for them.

Certainly, if you are dealing a fatal illness you and your family are facing a wide range of issues. Financial concerns at such are time can only be another very unwanted burden. There are numerous financial decisions you will need to make at this time. A viatical settlement or loan is one option you at least need to know is available, so that, if necessary, to can use it to your advantage.

Please send questions or comments to dcoffin46333@wradvisors.com.