Thinking About Viatical Settlements

If your loved one is considering making a viatical settlement on a life insurance policy, these guidelines should help him or her avoid costly mistakes and make the right choice.

  • Contact two or three viatical settlement companies to make sure offers are competitive, and be aware of prevailing discount rates. A viatical settlement company may pay 80 percent of the face value of a policy to a person whose life expectancy is six months or less.
  • Check with your loved one’s state insurance department to see if viatical settlement companies or brokers must be licensed. If so, check the status of the company with whom you are considering doing business. Also check with your loved one’s state attorney general’s office or department of insurance to see if there have been any complaints against the company.
  • Don’t fall for high-pressure tactics. Your loved one doesn’t have to accept an offer, and he or she can change his or her mind. Some states require a 15-day cooling-off period before any viatical settlement transaction is complete.
  • Verify that the company has the payout amount readily available. Large companies probably have cash on hand; smaller ones may have uneven cash flows or may be “shopping” the policy to third parties.
  • Insist that the company set up an escrow account with a reputable, independent financial institution before the company sends the offer papers for your loved one’s signature. An escrow account will let you be sure that the funds are available to cover the offer.
  • Insist on timely payment. Once the insurance company has made the necessary changes to the policy, your loved one should get his or her money within 2–3 business days.
  • Ask the viatical settlement company about possible tax consequences and implications for public-assistance benefits. Some states require viatical settlement companies to make these disclosures and tell your loved one about other options that may be available from his or her life insurance company.
  • Ask about privacy. Some companies may not protect a policyholder’s privacy when they act as brokers for payouts from potential investors.
  • Contact a lawyer to check on the possible probate and estate considerations. If your loved one makes a viatical settlement, there will be no life insurance benefits for the person originally designated as the policy’s beneficiary.

© Copyright FamilyCare America, Inc. All Rights Reserved.

Adapted from Viatical Settlements, developed by the United States Federal Trade Commission.

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