Definition of Viatical Settlements
Viatical Settlements refer to the detailed financial agreements whereby a life insurance policyholder, who is chronically or terminally ill, sells their policy to another party before the policy’s maturity (the death of the policyholder). This allows the original policyholder to access a portion of the death benefit while still alive, typically to cover medical or living expenses. The buyer of the policy pays a lump sum that is less than the expected death benefit but greater than the cash surrender value available directly from the insurer.
Legal Considerations and Regulatory Framework
In the United States, Viatical Settlements are regulated at both state and federal levels to ensure consumer protection and fair market practices. Some of these regulations include guidelines specified in the “Life Settlements Model Act” drawn by the National Association of Insurance Commissioners (NAIC), which provides a framework for state regulations to help govern viatical settlements more uniformly.
Furthermore, the Health Insurance Portability and Accountability Act (HIPAA) may apply, protecting the privacy of the policyholder’s health data throughout the process.
Key Steps in a Viatical Settlement Process
Determination of Eligibility: The policyholder must demonstrate a qualifying chronic or terminal illness as stipulated by the governing guidelines.
Valuation of the Policy: Determined via actuarial assessments considering factors such as the current health of the policyholder, the policy type, and the premiums required to maintain it.
Bidding from Potential Buyers: The potential buyers often include Viatical Settlement corporations that specialize in this kind of transaction.
Policy Sale and Transfer: Once a bid is accepted, the rights to the death benefit are transferred from the original policyholder to the purchaser in exchange for a lump sum payment.
Reporting and Tax Considerations: The lump sum received may be tax-free depending on the circumstances under existing tax laws. Subsequent management of the policy remains the buyer’s responsibility, including managing dead line premiums.
Key Considerations for Policyholders
- Consultation with Financial and Legal Advisors: Considering complexities and implications.
- Consider Potential Alternatives: Such as borrowing against the policy or seeking state-specific aid programs.
- Understand the Impact on Beneficiaries and Erectile Instrokes of Family Financial Planning.
