Eligibility Requirements for a Viatical Settlement

If you’re facing an illness that will result in a shortened lifespan or a chronic condition, a viatical settlement can provide answers. Such an arrangement offers an effective way to free up money from a life insurance policy that you no longer need.

Healthcare costs can be exorbitant. This is especially the case if you require frequent medical care. A viatical settlement is an ideal option if you need money to finance your healthcare.

Selling your life insurance through a viatical settlement gives you more money than the policy’s cash surrender value. This provides you with funds to cover your medical care costs. This can be especially helpful if you are finding healthcare costs to be cost-prohibitive, and you are concerned about having enough money to take care of your healthcare needs.

Types of Viatical Settlements

Two types of viatical settlements exist. The first type is a settlement for individuals suffering from a chronic illness. The second settlement is for individuals suffering from a terminal illness. Those with a terminal illness receive the highest settlement amount, since their lifespan is shorter. A terminal illness is one in which a person has a lifespan of two years or less.

An elderly lady being help to walk along a corridor

In order to be considered chronically ill, an insured person must not be able to perform two or more activities of daily living (ADLs). These activities include basic self-care tasks, such as dressing, eating, walking independently, attending to basic personal hygiene and continence management.

Viatical Settlement Eligibility

Not everyone with life insurance they wish to sell is eligible for a viatical settlement. If you decide you would like to secure a viatical settlement, your situation must meet the following criteria. You will qualify for a viatical settlement payout if:

  • You are terminally or chronically ill. This generally also means that you have a shortened life expectancy. You will need to provide medical records that prove you are suffering from an illness that has shortened your lifespan. The medical paperwork must outline your medical situation and provide documentation that you are compromised by a chronic or life-ending illness. The type of disease you have and the stage the disease is in will be considered.
  • Your life insurance policy is at least two years old. If your life insurance policy has been in existence less than 24 months, you are not eligible for a viatical settlement. If it is close to 24 months since you took out the policy, you may wish to wait until you are eligible and then apply for a viatical settlement.
  • Your life insurance policy has a face value of at least $200,000. The face value can be higher, but it must be at least this amount.

Viatical Settlement Facts to Consider

While a viatical settlement could make your final months or years more financially stable and comfortable, these arrangements aren’t without their challenges and drawbacks. One big issue to consider is the fact that once your viatical settlement is finalized, your heirs will no longer be able to take advantage of your death benefit.
Additionally, getting a viatical settlement may result in you no longer being eligible to receive Medicaid. Transaction costs will also vary, depending on your agreement. You could end up paying commission to several parties. There may even be hidden fees. Your creditors could also claim all or some of your settlement. If you have outstanding debts that you’re unable to pay, a viatical settlement may not be advisable.

A checklist and a pen

On the other hand, if your insurance policy is no longer necessary, and you would like to get rid of payments, a viatical settlement makes sense and is worth considering. If you are unsure about obtaining a viatical settlement, get the facts. A viatical settlement provider will advise you as to how much of a payout you can expect to receive. This will help you decide if a viatical settlement is right for your situation.

Alternative Options for Cash from Life Insurance Policies

If you find that a viatical settlement won’t work for your situation, there are other options to consider in order to obtain necessary funds from your life insurance. These include borrowing against the cash value of your policy, choosing an accelerated death benefit and surrendering your life insurance to the carrier for cash.

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