Viatical Settlement Eligibility

To be eligible for a viatical settlement, you must either be terminally or chronically ill. The National Association of Insurance Commissioners (NAIC) defines terminal illness as having a diagnosis expected to result in death within 24 months or less.

Chronic illness, on the other hand, is defined as either being unable to perform at least two daily living activities without assistance — such as bathing, dressing, or eating — or requiring regular health and safety supervision due to a severe cognitive impairment.

The specific requirements for diagnoses can vary by settlement company or by the state you live in. The Life Insurance Settlement Organization (LISA) keeps a list of state guidelines that outline important state-level criteria, such as the length of time you need to have held your policy, payout percentages and more.

Life insurance is designed to financially provide for your loved ones after your death. But it is also an asset in a long-term financial plan. If you sell your life insurance while you are still alive, the third party that buys it will assume payment of any premiums and will collect the full benefit after your death instead of your original beneficiaries.

Most states regulate viatical settlements. The National Conference of Insurance Legislators (NCOIL) also drafted a Life Settlements Model Act for states to use when legislating viatical and life settlements. State laws may vary, so it’s important to check the details with your state insurance department and your life insurance provider.

Before looking into a viatical settlement, be sure to also know the following about your current life insurance policy.

The answer to these questions can help you evaluate an offer from a viatical settlement company and whether it’s right for you.

Viatical settlements are different from a life settlement due to the life expectancy and health status of the seller. Only someone who is terminally or seriously chronically ill is eligible for a viatical settlement. Given the extremity of qualifications, there is no age requirement for a viatical settlement.

The transaction is usually completed quickly because of the sensitive nature of viatical settlements and the 24-month life expectancy limit. The lump sum payment you receive is largely tax-free and will typically be between 50% to 70% of the full payout of your policy.

There are many reasons why a terminally ill person might choose to sell their policy. For example, you might need money to pursue alternative treatments, make needed home adjustments, or pay for end-of-life care.

You also might want to use the cash to pay off large debts to help make things easier for loved ones later. Some people prefer to share the funds directly with their beneficiaries, so they can witness the results. Others might use their lump-sum payment to travel or simply enjoy the time they have left with friends and family in whatever form that might be.

It’s important to compare viatical companies, talk to their representatives, and get quotes and detailed outlines of the process before deciding. Choosing a viatical settlement may have financial and emotional effects, so it may not be right for every person or situation. You should discuss all the implications with your family, beneficiaries and trusted financial advisors.