Viatical Settlement
What Does Viatical Settlement Mean?
A viatical settlement occurs when an investor purchases an existing life insurance policy from another person. The investor provides an upfront cash payment to the policyholder, who then transfers ownership of the policy. Upon the policyholder’s death, the investor receives the death benefit. The investor pays less than the life insurance death benefit for the viatical settlement, with the intention of making a profit when the policyholder eventually passes away.
Insuranceopedia Explains Viatical Settlement
Viatical settlements are often conducted by viatical settlement companies, which specialize in these transactions. However, any investor can engage in a viatical settlement.
These transactions can be risky. Investors make a large upfront payment for the policy and must predict the seller’s life expectancy. If the seller lives longer than anticipated, it will reduce the investor’s return. This is why many viatical settlement companies prefer to make deals with individuals who have been diagnosed with terminal illnesses. Conversely, if the seller dies earlier than expected, the investor stands to earn a higher return.
