The concept of the “Viatical Settlement” goes back to the year 1980 when the AIDS epidemic spread at a very fast pace. At that time, huge numbers of people were affected and were seeking medical assistance in one form or the other. However, due to very expensive medical bills, the majority were not able to sustain it with their savings. As a result, people sold off their life insurance policies in order to get immediate liquid cash with them. Life expectancy at that time was typically short so both the investor and the Viator benefited. Since then, Viatical Investments have become an answer to financial requirements of needy people and present an excellent opportunity in the form of an investment to the investors.
What is a Viatical?
A Viatical Settlement can be described as an agreement in which the Viator, (who has a life insurance policy) sells his policy to a third party in order to have immediate access to liquid cash to which he can access before his death. Typically this Viatical Settlement involves the person with a short life expectancy of about 2 years. This assessment is judged by the doctors who review the ill person’s medical records. In this settlement, the investor, (who purchases the life insurance policy) becomes the new owner and beneficiary of the policy and is able to collect the entire death benefit after the death of the person with whom the policy was arranged for. Usually this transaction is held by a Viatical Settlement broker who handles both the parties.
How are they useful?
Generally, the policy of the terminally ill person is bought by Viatical Settlement Companies, which pays 50% to 80% of the face value of the policy (depending upon the medical condition) to the Viator. After it is sold to the investor, the investor receives 100% control over the policy as well as the beneficiary. The sooner the person dies, the higher investment is returned to the investor. However, the investor will have to keep paying the premiums on behalf of the ill person (or the Viator) in order to keep the policy alive for the time period the investment has been made. While returns of about 25% are typical, in some cases policies pay a substantially higher return where the death occurs earlier.
Types of Viatical Settlement Companies:
There are two types of Viatical Settlement Companies:
1. Non Brokered: These are the companies which directly hold all rights to the insurance policies and act as the designated beneficiary. They usually receive private fund and investors can participate by purchasing stocks in the Viatical Settlement company.
2. Brokered: In this category of companies, the Viatical Settlement Broker does not own the insurance policy, but he becomes entitled to a small percentage usually (4 to 6) of the death benefit. Investors can participate by being Co owners in the life insurance policies which are available for sale. Most of the Viatical settlement companies today fall in this category.
In the current economic climate, Viaticals have become a valuable lifeline in the quest to save individuals who are suffering financially. For those who are struggling to keep up with mortgages, car payments and sometimes, daily expenses, this may be an answer. It is important to note that there are various factors involved when considering an investment of this kind.