Life Settlement and Viatical Questions Answered

Question 1

Do I have to sell?

Accepted Answer

No. You can stop at any point, including after offers come in. If you decide against it, your policy carries on exactly as it is and you owe nobody anything.

Question 2

What is a life settlement?

Accepted Answer

The sale of your life insurance policy to an investor for a cash payment. The buyer takes over the premiums from that point and collects the death benefit later. You get money now instead of your beneficiaries getting money later.

Question 3

I have a terminal or chronic diagnosis. Is this different for me?

Accepted Answer

Yes, substantially. You are looking at a viatical settlement rather than a life settlement. Age stops mattering, the payout is typically several times larger, and the proceeds may qualify for exclusion from federal income tax where the requirements are met. Some states set a minimum a buyer cannot go below. Before any of that, check whether your policy has an accelerated death benefit rider, which lets you draw part of the benefit early without selling.

Question 4

What counts as chronically ill?

Accepted Answer

Broadly, being unable to perform several activities of daily living without substantial assistance, or requiring substantial supervision because of cognitive impairment, certified as such. It does not require a terminal prognosis, which surprises most people. If someone is entering long-term care, ask about this specifically.

Question 5

How much will I get?

Accepted Answer

Nobody can tell you until buyers have looked at the policy. Life settlements commonly land somewhere around 10 to 25 percent of the death benefit and viaticals often at 40 to 60 percent, though published ranges differ. Be careful of anyone who quotes a figure before reviewing your file.

Question 6

Do I have to be a certain age?

Accepted Answer

For a life settlement, usually 65 or older. For a viatical settlement, age is largely irrelevant; the diagnosis governs. Policies under $100,000 rarely find a buyer either way, though the threshold can be lower for viaticals.

Question 7

Can I sell a term policy?

Accepted Answer

For a life settlement, usually only after converting it to permanent coverage, and the right to convert expires. For a viatical settlement, conversion is often unnecessary if the remaining term comfortably exceeds the life expectancy. Check your conversion deadline either way, because it does not come back.

Question 8

Can I sell only part of my policy?

Accepted Answer

Sometimes. A retained death benefit arrangement lets you take cash for part of the policy, stop paying premiums entirely, and leave a reduced death benefit for your beneficiaries. Not every buyer offers it.

Question 9

How long does it take?

Accepted Answer

Usually 60 to 90 days for a life settlement, and often faster for a viatical settlement. The slowest part is collecting medical records from doctors' offices, which is largely outside anyone's control.

Question 10

Will I owe taxes on the money?

Accepted Answer

For a life settlement, possibly. Part may be tax free and part taxable, depending on your cost basis. For a viatical settlement, proceeds may qualify for exclusion from federal income tax under IRC section 101(g) where the conditions are met, including physician certification and selling to a licensed provider. Talk to your own tax advisor before you close. We are not tax advisors.

Question 11

Could this affect my Medicaid or other benefits?

Accepted Answer

It can. A lump sum may count as an asset and affect eligibility for needs-based programs, and that is true even where the proceeds are tax free. Raise it early so it can be planned around rather than discovered afterwards.

Question 12

What happens to my beneficiaries?

Accepted Answer

They no longer receive the death benefit; the buyer does. That is the trade, and it is the part worth thinking hardest about. If someone is relying on that policy, ask them before you decide.

Question 13

What if I already have an offer?

Accepted Answer

Have it looked at before you sign. A single offer tells you what one buyer will pay, not what the policy is worth. If there is a diagnosis, also check the offer is a viatical settlement and not an ordinary life settlement, because the difference can be several times the money.

Question 14

Can I change my mind after I sell?

Accepted Answer

There is normally a rescission window after closing during which you can unwind the transaction. The length varies by state, so ask what yours is and get the answer in writing before you sign.

Question 15

What happens if I do not qualify?

Accepted Answer

We tell you, usually on the first call, and that is the end of it. There is no cost and nothing about your existing coverage changes. Most policies do not qualify.

Question 16

What does it cost me?

Accepted Answer

Nothing out of pocket at any stage. The broker's commission comes out of the settlement proceeds only if a sale closes. If you decide not to sell, you owe nobody anything.

Question 17

What happens to my personal and medical information?

Accepted Answer

It goes to us and to the licensed broker handling your file, and to buyers reviewing your policy under confidentiality. We do not sell it to marketing lists. You can ask us to delete your file at any time.

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