Understanding Viaticals

Viatical settlements typically refer to the sale of a life insurance death benefit by an insured that is terminally or chronically ill to a third party for more than its cash “surrender” value, but less than its net death benefit. The third party becomes the new owner of the policy, pays the monthly premiums, and receives the full benefit of the policy when the insured person dies. The return on investment depends on the seller's life expectancy.

The Supreme Court issued a decision in 1991, setting forth the legal principle that a life insurance policy is private property, which can be assigned or sold at the will of the owner. Selling a life insurance death benefit can be a valuable tool for the personal financial management of many terminally ill people. Such a sale provides the policy owner with a lump sum amount immediately in a way that provides value from the policy while the policy owner is still alive.