Viatical agreements are financial transactions that involve the sale of a life insurance policy from the policyholder to a third-party investor. These agreements are a useful option for policyholders who are suffering from a terminal illness and are in need of funds to cover their medical expenses.
In a viatical agreement, the policyholder sells their life insurance policy to a viatical settlement provider for a lump sum payment, which is typically a percentage of the policy`s face value. The provider then assumes responsibility for paying the premiums on the policy until the death of the policyholder, at which point the provider will receive the insurance payout.
Viatical agreements are regulated by state law and require the involvement of licensed viatical settlement providers. In most cases, the policyholder must have a life expectancy of two years or less to be eligible for a viatical agreement.
One of the benefits of a viatical agreement is the quick access to funds that the policyholder receives. This cash infusion can be used to pay for medical expenses, treatments, and other costs associated with the patient’s terminal condition. Additionally, the viatical settlement provider assumes the responsibility for paying future premiums, which can provide relief for the policyholder and their family.
However, there are also potential drawbacks to viatical agreements. The payout to the policyholder is typically less than the death benefit of the policy, and the policyholder forfeits the full benefit to their named beneficiaries upon their death. In addition, the sale of a life insurance policy may have tax implications for the seller and the buyer.
When considering a viatical agreement, it is essential to work with experienced professionals and to conduct thorough research. Policyholders should consider other options for accessing funds, such as accelerated death benefits offered by their insurance provider.
In summary, a viatical agreement can be a viable option for policyholders facing a terminal illness and in need of cash to cover expenses. However, it is critical to understand the benefits and drawbacks of this type of transaction and to work with trusted professionals when considering a viatical agreement.