Definition and Meaning
A Viatical Settlement is a financial transaction where a person with a terminal illness sells their life insurance policy to a third party for a lump sum of money, which is less than the death benefit. This transaction allows the policyholder to receive funds while they are still alive, in exchange for the new owner assuming the rights to the death benefits when the policyholder passes away.
Etymology and Background
The term “viatical” derives from the Latin word “viaticum,” meaning provisions for a journey. Historically, “viaticum” referred to rituals associated with an individual’s final journey after death. The formalization of viatical settlements emerged during the AIDS crisis in the late 1980s, as terminally ill patients sought financial relief.
Key Takeaways
- Immediate Financial Relief: Provides funds to terminally ill individuals who need financial assistance before they pass away.
- Loss of Policy Control: The original policyholder relinquishes control and rights to another party.
- Ethical Considerations: Poses questions about the exploitation of the policyholder’s dire circumstances.
- Determined by Life Expectancy: Typically available to policyholders with a life expectancy of two years or less.
- Fluctuating Lump Sum: The amount received is generally a fraction of the policy’s face value, reflecting the purchaser’s risk and the insured’s life expectancy.
Differences and Similarities
- Viatical Settlement vs. Life Settlement:
- Similarity: Both involve selling a life insurance policy for immediate funds.
- Difference: Life settlements are generally for older individuals who are not necessarily terminally ill and can have longer life expectancies.
Synonyms
- Accelerated Benefit Option
- Life Insurance Payout Option
- Early Policy Sale
Antonyms
- Policy Conservation
- Standard Death Benefit Payout
Related Terms
- Life Insurance: A contract that pays out a lump sum to beneficiaries upon the policyholder’s death.
- Terminal Illness: A disease that is expected to result in death within a specific period.
Frequently Asked Questions
What is a viatical settlement?
A viatical settlement is the sale of a life insurance policy by the policyholder, who is typically terminally ill, to a third party for immediate cash.
Who is eligible for a viatical settlement?
Eligibility usually requires a terminal diagnosis with a life expectancy of two years or less.
How is the payout calculated?
The payout is determined based on the policyholder’s life expectancy and the policy’s face value; it’s generally a fraction of the death benefit.
Are there ethical concerns?
Yes, there are concerns about the potential exploitation of vulnerable, terminally ill individuals in desperate financial situations.
How are viatical settlements regulated?
Regulation varies by state; some jurisdictions have strict rules, while others have more lenient guidelines. Always check local laws.
Exciting Facts
- The viatical settlement market emerged prominently during the AIDS crisis as patients sought financial means to cover medical expenses.
- It’s possible to establish viatical settlements through both term and whole-life policies, though eligibility criteria may vary.
- Many states in the U.S. have specific regulations to protect consumers in viatical settlement transactions.
Quotations and Proverbs
“Only those who dare to fail greatly can ever achieve greatly.” — Robert F. Kennedy
“Insurance is the only product that both the seller and buyer hope is never actually used.” — Unknown
Related Government Regulations
- The Viatical Settlements Model Act established provisions for licensing, disclosure, and notification to ensure transparent transactions.
- Health Insurance Portability and Accountability Act (HIPAA) offers federal guidelines to protect patients’ rights to viatical settlements.
Suggested Literature and Further Studies
- “Life Settlement Planning” by Stephan R. Leimberg and Keith Buck
- “The Complete Book of Insurance: The Consumer’s Guide to Insuring Your Life, Health, Property, and Income” by Ben G. Baldwin
- Various financial planning journals and state insurance department publications.
Quizzes
Thank you for diving into the world of viatical settlements with us. Life insurance can be complex, but remember, we navigate these waters so you don’t have to. Until next time, keep questioning and learning!
— Eleanor Bradley
