Understanding the differences between a life settlement and a viatical settlement isn’t always easy if you don’t have any experience in the insurance industry. However, knowing these terms is key to helping you make the best decision for selling your life insurance policy, as either one of these options can provide you with immediate cash. Working with a life settlement advisor is helpful in understanding all of your available choices to ensure you select the best option for your situation.
What Is a Life Settlement?
A life settlement is also known as a “senior settlement.” This is simply a financial transaction involving a policy owner transferring their ownership to a life settlement company. The policy seller receives cash after completing this transaction, as this payout is a life settlement. These life settlements are often for healthy seniors at least 75 years or older with an average life expectancy.
Why Should I Consider Selling My Life Insurance Policy?
One of the main advantages of a life settlement is that it provides extra money for retirement. You won’t have to ever worry about paying expensive premiums, as these payments become the company’s responsibility to buy your policy. You can also spend these funds from a life settlement in any way, as you aren’t restricted on how to use your money. Selling your policy is much more valuable than surrendering your policy or letting it lapse.
Additional Benefits of a Life Settlement
A life settlement offers cash now, which can help you manage unexpected expenses. You can even invest some of your life settlement into your retirement portfolio, which is beneficial in further improving your net worth. Life settlements are also significant for funding long-term care, such as nursing home facilities, in-home care, or other residences for seniors.
What Is a Viatical Settlement?
Viatical settlements are for life insurance policyholders dealing with a life-threatening disease, chronic health problems, or a lesser life expectancy. Selling their policy allows them to receive immediate cash, but the face value of the policy needs to be at least $100,000 or greater. The policy also needs to be at least two years old before you can sell it. Different policy types can be sold during a viatical settlement, whether term life, whole life, joint-life, universal, or group insurance.
Viatical Settlement vs. Life Settlement
Learning about viatical settlements and life settlements is critical if you are thinking about selling your policy. Depending on your situation, you may qualify for either one of these settlements. The most significant difference between life settlements and viatical settlements is that life settlements are for healthy individuals while viatical settlements are reserved for anyone living with a life-threatening condition.
For example, it’s possible to be eligible for a viatical settlement if you are diagnosed with Alzheimer’s, ALS or cancer. On the other hand, you don’t need to be ill to qualify for a life settlement, but you often need to be at least 75 years or older. Discussing your situation with a life settlement advisor is beneficial in helping you make the best decision while avoiding any mistakes.
What is the Payout Amount?
Typically, you will receive a more significant payout amount for a settlement if you have a larger life insurance policy and death benefit. Other types of life insurance may also be more valuable than others, which can impact the payout of your settlement. Viatical settlements are usually bigger than life settlements due to them being more specific, and they are not taxed as income.
Tax Differences Between Life Settlements and Viatical Settlements
Knowing the tax implications for either one of these settlements is important before you decide. Life settlements are taxable income, while a viatical settlement is tax-free. The government understands that someone dealing with a life-threatening illness should be able to sell their policy without having to worry about paying any taxes on the transaction.
Which is the Best Choice for Me?
A life settlement is an excellent option if you are a healthy senior at least 75 years of age, while a viatical settlement is a better choice if you are dealing with a life-threatening illness. Your policy needs to be at least two years old, and it requires a face value of at least $100,000 to qualify for a viatical settlement. Doing your research in advance is always a good idea in making it easier to make the right choice for your situation. Reaching out to a company that specializes in buying life insurance is a great way to learn more about this process while allowing you to receive cash for your policy.