People want to protect their families from incurring debt due to medical or funeral expenses, and many people also hope to leave some money for their children or grandchildren when they pass away. However, there are times when people need to accept cash settlements in lieu of their life insurance policies to take care of their own needs. There are different types of settlements, such as cash life, senior settlements, and viatical settlements.
Cash Life is probably the most readily recognized term, and this type of program is designed for people who are only anticipated to live fourteen years or less and have a policy that is worth at least $100,000.00. Senior Settlements are obviously for senior citizens, specifically, people over sixty-five who have health problems and have policies worth over $100,000.00.
Viatical Settlements are very different from these. The age of the policyholder is not as relevant as the person's health and life expectancy. Viatical Settlements are intended for people suffering from terminal illness or those who are not expected to live more than two years for whatever reason.
Since Viatical Settlements are usually used to defray medical expenses, they are dealt with differently than other types of settlements. Viatical Settlements are the only cash settlements that are not subject to federal taxes as per the Health Insurance Portability and Accountability Act or HIPAA.
Viatical settlements can also act as investments for those who wish to purchase life insurance policies. The policy, or a portion of it, is purchased for less than the amount that would be paid out upon the policyholder's demise. When the policyholder passes on, the purchaser collects the death benefit.
As investments, viatical settlements are not without risk. They seem like a sure thing because the policyholder will eventually pass away. However, the amount received by the purchaser of the policy is determined by the date on which the policyholder actually dies. If that person lives longer than expected, the return will be less than anticipated. Besides earning less of a return than expected, the purchaser runs the risk of actually losing money if the policyholder lives much longer than expected and additional premiums must be paid in order to keep up the policy.
There are people who find purchasing such settlements somewhat disconcerting, but the option of obtaining necessary cash is very helpful to people who find themselves in difficult situations. As long as vulnerable people are given a fair deal and are not taken advantage of, viatical settlements can be mutually beneficial.
