What Is A Viatical Settlement Agreement? 6 Important Things To Know

what is a viatical settlement agreement?

A viatical settlement agreement, also known as a viatical sale, is a contract between a terminally ill individual and a third party. The third-party, usually an investor or a viatical settlement company, purchases the policy from the policyholder by paying for its face value.

What Is A Viatical Settlement Agreement

A viatical settlement agreement is a contract that sets forth the terms and conditions for the sale of a life insurance policy to a third party. The third party often referred to as the beneficiary, receives cash payments from the insurance company in exchange for assuming ownership of the policy and its associated benefits.

In essence, a viatical settlement assumes that a policy-holder has two years or less to live. If the insured policy-holder dies earlier, the rate of return would be higher for the investor. Conversely, where the insured exceeds life expectancy (usually two years), the rate of return is lower. 

A viatical settlement agreement can be complex, so it is important to understand what it is and how it works before signing on the dotted line.

What is the purpose of a viatical settlement agreement?

The purpose of the agreement is to provide financial security for the policy-holder in the event of their death, by transferring ownership of the policy to an investor. This agreement is also utilized to provide a financial solution for an individual who is struggling financially.

Viatical settlements are usually used when an individual has no immediate family members who can inherit their life insurance policy, or when those family members are not interested in continuing to own the policy. However, it should be noted that where a viatical settlement agreement is created, the right to pass on this policy is relinquished whether or not there are interested beneficiaries.

How Does a Viatical Settlement Work?

Once someone has decided to sell their life insurance policy, they will need to contact their insurance company and provide them with a notice of viatical settlement. This notice will set in motion the process of transferring ownership of the policy to an investor.

Once the investor has been identified, they will need to meet with the policy-holder to discuss the terms of the sale. This meeting can be held in person, over the phone, or even through video conferencing. Once these terms have been agreed upon by both parties, the investor will then be able to submit a proposal for the policy to be transferred.

Once the proposal has been accepted, the insurance company will issue a Final Viatical Settlement Notice (FVSN) which will officially transfer ownership of the policy to the investor. At this point, payment for the policy can be made.

Who can enter into a viatical settlement agreement?

A viatical settlement agreement can be entered into by anyone, including individuals, couples, and families. In certain cases, they can be entered into by those who are not legally related to the policy-holder.

What is included in a viatical settlement agreement?

The terms of a viatical settlement agreement are typically very strict and include, but are not limited to, the following:

  • The purchase price of the life insurance policy

    The purchase price is usually the face value of the policy, which is the amount that the insurer will pay a terminally ill individual for ownership of their life insurance policy.

  • The premium paid for the life insurance policy

    The premium paid for the viatical settlement agreement (VSA) is generally higher than the premiums paid for traditional life insurance policies because the VSA allows for a quicker sale of the policy and gives the purchaser more time to obtain financing.

  • The premium paid for the sale of the life insurance policy

    The premium paid for the sale of the life insurance policy is called the death benefit. The death benefit is what the insurance company or investor pays out to the beneficiary of the policy if the insured person dies.

  • The death benefit paid to the policyholder

    The death benefit paid to the policyholder under a viatical settlement agreement is based on several factors, including the amount of money remaining in the policy at the time of death, how long the policy had been in effect, and whether any premiums had been paid on it. In most cases, the payment is made immediately and without any further administrative hassle.

  • Any administrative costs associated with the viatical settlement agreement

    There may be administrative costs associated with a viatical settlement agreement, such as fees for an attorney or accountant. If the proceeds from the viatical settlement are used to cover some or all of these costs, that could reduce the amount of money available to pay the beneficiary.

Viatical Settlement Vs Life Insurance

Viatical settlements are often confused with life insurance. A viatical settlement is an agreement made between a person who has a life insurance policy and a third-party investor. The purpose of the agreement is to settle the policy, usually in exchange for a lump-sum payment. This type of agreement is typically used when someone does not want or need life insurance anymore, but still wants some financial security in case of death.

A life insurance policy is an agreement made between a person who wants protection from death and a life insurance company. The company will issue a policy to the person, and the policy will protect the person and their family members for a set period. The policy may also give the person the option to buy additional insurance coverage.

Viatical settlements are becoming more popular as people become more aware of their options after retirement. Withdrawing money from a 401(k) or IRA account can be difficult if the person cannot do so themselves, and selling life insurance policies can be difficult and time-consuming. Viatical settlements make these types of transactions much easier and faster, providing peace of mind for both the policyholder and the investor.

Six Important Things To Know About A Viatical Settlement?

  1. A viatical settlement is not a life insurance policy replacement. The proceeds from a viatical settlement go only to the beneficiary named in the policy. 
  2. There are federal and state laws that may affect how a viatical settlement is treated.
  3. The viatical settlement agreement is not binding until it is signed by all parties involved
  4. Viatical settlements are not always easy to get. You may need the cooperation of both the policyholder and the insurance company, and you may have to pay a fee to the viatical settlement company.
  5. You are not required to participate in a viatical settlement. However, if you do not want the company to sell your policy to someone else, you may want to make arrangements with them ahead of time.
  6. It is important to investigate the terms and conditions of any viatical settlement agreement carefully before signing it. There are often special terms and conditions that apply only to certain types of policies or investments, and it is important to know about them before you agree to anything.
  7. Finally, It is important to consult with an attorney before signing any agreements related to life insurance. A lawyer can help protect your rights and ensure that everything goes smoothly during and after the viatical sale process.

What happens if a viatical settlement agreement is not completed?

If a viatical settlement agreement is not completed, the beneficiary may be left with no money or may receive less money than they were promised. In some cases, the beneficiary may also have to pay back any money they received from the viatical settlement agreement.

Note: Where the life insurance policy expires, the benefits that would have been paid out will go to the original beneficiary.

Conclusion:

Viatical settlements can be a beneficial way for those with life insurance policies to receive some financial security in their time of need. By understanding the process and what to look for in a settlement agreement, those considering this option can make an informed decision that best suits their needs.

 

 

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