As people age, it may be necessary for them to make difficult decisions about their finances and health care. Anyone affected by a chronic illness, such as diabetes or heart disease, knows that health concerns can change the way you live and work daily.

You may also have to make critical financial and medical decisions if you learn that you’re terminally ill. Estimates suggest 1.8 million people in the United States were diagnosed with cancer in 2020, while over 600,000 people died from the disease. These numbers don’t include hundreds of thousands of other patients diagnosed with or lost to other terminal illnesses each year. If you’ve been diagnosed with a chronic or terminal illness, you may be wondering what a viatical settlement is and if it’s right for you.

What is a viatical settlement?

A viatical settlement is a term for selling your life insurance policy while you’re still alive. People who qualify for viatical settlements find a viatical settlement provider who handles all the details. Viators can choose between viatical settlement companies and viatical settlement brokers. A company specializes in handling sensitive transactions on behalf of clients. Brokers work with multiple companies but charge higher fees. The viatical settlement company confirms the viator qualifies for a viatical settlement by reviewing their medical records and life insurance policy. Once the viator’s approved, their viatical settlement company locates a third party who buys the life insurance policy. The buyer pays a single lump-sum payment to the viator.

Who qualifies for viatical settlements?

To be eligible for a viatical settlement, you must be diagnosed with a chronic or terminal illness. Chronic illnesses are medical conditions that affect a person’s lifestyle for a prolonged period of one year or more. While some chronic illnesses, like hypertension, can be managed with diet, exercise, and medication, other chronic illnesses can become terminal. Diabetes, heart disease, and cancer are among the leading causes of death in the United States.

Third-party buyers expect viators to have a life expectancy of no more than two years. The buyers base the amount they pay for the viatical settlement on the viator’s life expectancy, which is why people who don’t have terminal or chronic illnesses don’t qualify.

The viator must also have a valid life insurance policy. This is something to consider when you’re looking for the best life insurance in Canada. Life insurance companies, such as Canada Life and Desjardins, sell different types of life insurance policies. Types of policies include permanent life insurance, such as whole life insurance, and term life insurance. Permanent life insurance policies don’t expire, while term life insurance policies only pay benefits if the policyholder dies during the set term. Once term life insurance expires, policyholders must renew the policy or obtain a permanent life insurance policy to have life insurance.

How do viatical settlements differ from life settlements?

A life settlement involves finding a third party to purchase your life insurance policy. Both viatical and life settlements pay more than the cash value of the life insurance policy but less than the death benefit. The people who buy both viatical and life settlements name a new beneficiary for the policy who receives the death benefits when the insured party dies. With both types of settlements, the buyer assumes responsibility for outstanding premiums owed on the policy. The critical distinction between viatical and life settlements has to do with qualifying. While viators must be chronically or terminally ill, anyone can pursue a life settlement. Buyers pay less for life settlements than they pay for viatical settlements because people who qualify for life settlements have a longer life expectancy.

What are the benefits of pursuing a viatical settlement?

You may decide you don’t need your life insurance policy because you have a second insurance policy or have sufficient funds to handle your final expenses. You may also opt to sell your insurance policy to obtain the funds you need to cover medical expenses and other personal costs. Whatever your reasons, the money you receive from a viatical settlement is yours to use in any way you choose. The money is tax-free, and no regulations require you to pay off debts or use the money to cover your funeral costs. You can opt to use the funds to sail to Hawaii, complete your bucket list, establish trust funds for family members, donate all the money to your favorite charity, or pursue alternative treatments for your condition.

Only people who have chronic or terminal illnesses qualify for viatical settlements. A viatical settlement company or broker verifies the viator qualifies and locates a buyer for their life insurance policy.

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By Ram Ram