Selling a life insurance policy is not like selling any other kind of asset. This is especially so if you are involved in a viatical settlement, which involves a policy for an insured individual who is terminally ill. With a viatical life settlement the policy owner gets a lump sum of cash that is less than the death benefit and more than the surrender cash value (if there is any), and the policy owner also is no longer responsible for making premium payments on the policy. A unique factor is that the purchaser of the policy — typically called a viatical settlement provider — gains a vested interest in when the insured will die because the provider becomes the policy beneficiary. It is this scenario that may have you wondering “What is a viatical settlement provider?” and “Why would there be a market for these types of life insurance policies?”
Viatical Settlement Providers: the Basics
If you sell a house, a used car, or other similar asset, you may not care to know anything about the buyer. When selling a life insurance policy that requires the insured to die before the buyer collects, however, it’s understandable that a policy owner might want to know something about the purchaser. So, let’s introduce you to viatical settlement providers.
What does “viatical” mean? Let’s differentiate between a life settlement and a viatical settlement. In most states, it encompasses the definition we mentioned above — the life insurance policy in a viatical settlement involves a terminally ill person. Life settlements, on the other hand, typically involve people 65 and older who are not necessarily terminally ill. They often just prefer a lump sum now so they can save on premiums, invest the cash, travel, pay health care expenses, or spend the money however they want. However, some states use the terms “life settlement” and “viatical settlement” interchangeably.
Viatical settlement providers exist because circumstances may allow that a policy owner exchange his or her policy for a lump sum of cash rather than wait for the death benefit to be awarded to the beneficiary or beneficiaries. This could be the case if the policy owner can no longer afford the premiums, if the insured has skyrocketing medical bills, if the beneficiary has died or is no longer dependent on the benefit, etc. A financial advisor or insurance agent may even suggest this option, since not everyone is familiar with life or viatical settlements.
It’s worth nothing that viatical settlement providers are regulated in most states. They often are financial investment companies that buy many policies every year. These investors have the financial resources to provide lump sums of cash up front and also take over the premium payments, knowing they eventually will collect the death benefit. With large portfolios of policies — and because everyone eventually dies — viatical settlement providers typically benefit from a steady cash flow that is not sensitive to volatile market conditions like other investments are.
To summarize, viatical settlement providers pay cash to take over existing life insurance policies. So, if you have wondered, “What is viatical insurance?” the phraseology is incorrect. Viatical settlement providers don’t provide a different kind of insurance, instead they provide cash for an existing policy.
What Is a Viatical Settlement Broker Then?
This is a valid question because understanding how a broker differs from a provider will lend further insight into what a provider is. A broker, such as IMS Settlements, represents the policy owner and typically has a network of providers to whom it will shop the existing policy. The broker’s goal is to get the best offers possible from providers, negotiate terms, and help make the process as easy as possible for the life policy owner.
The viatical settlement provider will consider several factors in determining how much to bid or offer for the existing life policy that’s for sale. The key considerations include:
- The amount of the policy’s death benefit
- The premium payments
- The insured’s age and medical condition
- The type of policy (whole life, term, etc.)
How IMS Settlements Can Help
Viatical settlement providers work with brokers such as IMS Settlements because the providers want to do business in large volumes. IMS Settlements, with more than 50 years of combined experience in the life insurance industry, maintains relationships with numerous institutional funding sources across the country that bid competitively on our policy. For more information or to determine what your life insurance policy may be worth in today’s market, contact us or request a free evaluation.