| Viaticals
In the late 1980’s the first pre-death purchase of a life insurance policy of a terminally ill individual was consummated. In 1990 a financial planner specializing in planning for the terminally ill coined the phrase "viatical" to differentiate a third party transaction from other types of living benefits offered by the insurance companies (cash value loans, annuities, exchange privileges). By 1990, it is estimated that there were six companies buying policies from terminally ill patients and two broker companies who had purchased about 500 policies with a face value of between $40 and $50,000,000. Today, it is estimated that $500,000,000 in life insurance policies are viaticated annually.
Realizing the rapid growth of the viatical industry, the National Viatical Association (NVA) was founded in early 1993. The NVA headquarters are located in Washington, DC. This is the association that sets the standards for the viatical industry and operates on behalf of its members and the individuals they serve.
Definitions
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Viator
The owner of a life insurance policy insuring the life of an individual with a catastrophic, life-threatening or chronic illness or condition who enters into a viatical settlement contract.
Viatical Settlement
Proceeds from the sale of a life insurance policy to a third party by a viator, not to be confused with accelerated benefits.
Viatical Settlement Contract
A written agreement entered into between a viatical settlement provider and a viator. The agreement establishes the terms under which the viatical settlement provider will pay compensation, which compensation is less than the expected death benefit of the insurance policy, in return for the viator ‘s assignment, transfer, or sale of the death benefit or ownership of all of a portion of the insurance policy to the viatical settlement provider.
Viatical Settlement Provider
A company that enters into a viatical settlement contract.
Viatical Settlement Broker
A person that on behalf of a viator negotiates viatical settlements between a viator and one or more viatical settlement providers. A viatical settlement broker is deemed to represent only the viator and owes a fiduciary duty to the viator.
A Brief Description
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A viatical settlement is simply the sale of an existing life insurance policy by a terminally ill person to a third party in return for a percentage of the face value of the policy paid immediately.
The viatical settlement is an effective estate planning tool which permits a person dealing with a life-threatening illness to ease the financial stress often associated with a long, disabling medical condition. In short, a viatical settlement allows a terminally ill person to enjoy the benefits of his or her life insurance policy while he or she is still alive and to transform a non-producing asset into immediate cash which can be used to improve the quality of his or her life.
Assignments and sales of life insurance policies are as old as life insurance itself. Under the laws of all states, a life insurance policy is treated as the intangible personal property of the owner. Therefore, as with any other type of personal property, it can be freely assigned by the owner (With the exception of certain restricted policies).
Life-limiting illnesses, in addition to their detrimental health effects, exact a tremendous financial toll upon insureds and their loved ones. With the rapid increase in the number of and the spread of many such illnesses, especially AIDS and certain types of cancer, the use of such assignments by insureds has become more widespread and has developed into the viatical settlement industry.
Viatical settlements are truly "win-win" transactions for both the seller and the purchaser of a policy Viatical settlements have been recognized and supported by the National Association of People With AIDS, several noted financial planners, various support organizations nationwide, and innumerable viators who have benefited from viatical settlements.
The American Cancer Society believes that the viatical settlement process may be beneficial to certain cancer patients and supports the granting of an income tax exemption for such payments. The Society recommends that whenever possible, professional advice be sought before agreeing to any specific settlement.
The process by which a viator sells his or her life insurance policy has been designed and structured to make the transaction as simple as possible.
1. The viator contacts a viatical settlement company and informs them of his or her desire to sell their policy During this period, the viator is encouraged to contact more than one member company. Potential viators should bear in mind that, while getting more than one bid is encouraged, each different viatical settlement member company they apply to will be contacting their doctor and insurance company. This may slow down the viatical settlement process.
2. When the viator has found a few viatical settlement companies with whom he or she feels comfortable, the viatical process will begin with the selected member companies mailing an application package to the viator.
3. The viator then returns the requested information, and the viator’s selected member companies will prepare a package to present to potential funding companies on behalf of the viator. Many member companies will present the viator’s package to only one funding source at a time in order to protect the confidentiality of the viator. Others will present a package to several different potential funding sources simultaneously in order to minimize the waiting time. The viator should make certain he or she knows which approach the selected member company is taking so that his or her package is not given to anyone without his or her prior knowledge and permission. Some viatical settlement companies purchase policies directly from viator.
4. Once an offer has been made, the viator is notified of the offer. The viator will make the decision as to whether or not to accept the offer. If the viator chooses not to accept the offer, then the company will continue to send out the viator’s package to other funding sources (often one at a time) with the viator’s permission until a satisfactory offer is accepted by the viator
5. As soon as an offer is accepted, the necessary contracts and forms are drawn up and sent to the viator
6. When the funding source and the escrow agent receive the completed and signed forms from the viator, the funding company deposits the funds in the escrow account. The viator should make certain that the transaction is being conducted through an independent, third party trustee or escrow agent before signing and returning the final documents. All member companies of the National Viatical Association are required to use such an agent.
7. If all other paperwork has been completed and received by the appropriate parties, immediately upon receiving the acknowledgment of change of ownership from the insurer (this time frame may differ with each viatical settlement company), the escrow agent releases the viatical settlement funds to the viator.
What has been presented here is a very simplified overview of a "generic" viatical settlement transaction. Whatever method a viator chooses to use for viaticating a policy, it is important to understand that the final result bf the viatical settlement will reflect the choices made by the viator. During the process there is never a time when the viator does not have a choice concerning what is best for him or her.
Did You Know...
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There are possible alternatives to viatical settlement contracts for persons with catastrophic or life threatening illnesses. These indude but are not limited to, accelerated benefits offered by the issuer of the life insurance policy
Some or all of the proceeds of the viatical settlement may be free from federal income tax and from state franchise and income taxes. Assistance should be sought from a professional tax advisor.
Proceeds of the viatical settlement could be subject to the claims of creditors.
Receipt of the proceeds of a viatical settlement may adversely affect the viator ‘s eligibility for Medicaid or other government benefits or entitlements. Advice should be obtained from the appropriate agencies.
The viator may have the right to rescind a viatical settlement contract within fifteen (15) calendar days of receipt of the viatical settlement proceeds by the viator.
Entering into a viatical settlement contract may cause other rights of benefits, including conversion rights and waiver of premium benefits that may exist under the policy to be forfeited by the viator.
Feel free to contact us anytime for a free no-risk consultation toll-free at (877) 836-4661 or if you have any questions. |
