The Latin word viaticum means “provisions for a journey” which gives us some insight into the subject of viatical loans and settlement.
Viatical Loans and Viatical Settlements: There’s a big difference
Viatical loans provide a legal, safe, and regulated means by which the policy holder can receive an amount of cash while retaining some ability to leave a cash sum from their life insurance policy to their family after they die.
Viatical settlements provide cash to terminally ill life insurance policy holders in exchange for their policies. A viator is a policy holder that sells (viaticates) their life insurance policy. A pool of investors or a company that specializes in settlements provides the funds to the viator in exchange for the policy itself. Upon the policy holder’s death, the investors receive the death benefit associated with the policy.
With both viatical loans and viatical settlements, the policy holder generally has a life expectancy of less than four years, and more commonly less than two years, due to the medical diagnosis of a major disease.
For viatical loan eligibility, it is necessary to have the terminal medical diagnosis confirmed by at least two 3rd party Life Expectancy companies. These actuarial companies will issue a report that shows how long the insured will probably live. Viatical loan companies use these reports to offer a certain loan amount and terms to the policy holder.
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Viatical Loan Basics
Here are the requirements for receiving a viatical loan:
- The policy must be issued by a U.S. company
- The policy must be transferable
- The policy can be employer-provided, term, or whole life and there’s not a requirement for a cash surrender value
- The policy must be at least two years old
- The policy must have a death benefit of $50,000 for individuals and $100,000 for group policies
- The insured must be a permanent U.S. resident
The amount of a viatical loan varies widely according to many factors. A loan administrator will take these facts of the policy holder’s individual situation into account before issuing proposed loan terms:
- The death benefit of the life insurance policy
- The estimated amount of remaining life insurance premium payments due to keep the policy in effect
- The policy holder’s life expectancy as projected by the 3rd party Life Expectancy companies
- The life insurance company that holds the policy and the type of policy in question
Here are the things that many people considering this option may believe influence their proposed loan terms or the loan amount:
- The credit history and credit score of the insured and/or the insured’s spouse
- The assets owned by the insured and/or the insured’s spouse
- The employment history or current employment status of the policy holder
It’s important to understand that none of the above three factors have any effect on the amount and terms of a viatical loan or whether a viatical loan is an option.
Viatical loan amounts vary
For people with a terminal medical diagnosis, the possibility of receiving a large chunk of cash in advance of their death offers relief from medical bills, the opportunity to potentially participate in clinical trials or obtain special medication they couldn’t previously afford, money for medical and life insurance premium payments, and even additional funds to help them achieve life-long goals and dreams. It helps them take care of their family while they are still living and perhaps tie up some loose ends before their death.
Many people don’t realize that getting cash out of their life insurance policy with a viatical loan before their death is one of their choices. One of the most common questions people have about viatical loans is how much money they can get by participating in this innovative financial solution.
Although terms, conditions, and amounts of viatical loans vary widely, in most cases the final loan amount falls between 35% and 70% of the death benefit as stated on the life insurance policy.
Some companies that administer viatical loans have their own consulting physicians, including oncologists, cardiologists, and specialists who understand rare life-threatening diseases.
As viatical loans become more popular, physicians are seeing a higher number of requests for access to their patients’ full medical records for evaluating eligibility for this type of financial product. The current HIPPA (Health Insurance Portability and Accountability Act) laws require viatical loan companies accessing medical records (with written permission) to keep all the information they evaluate confidential. Viatical loan companies are not allowed, by law, to share information about the medical condition of any of their potential, current, or past clients.
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Benefits of participating in a viatical loan
Here are some of the benefits to evaluate when deciding whether to participate in a viatical loan. Reputable companies will be able to discuss each in depth:
Zero up-front costs
– All origination fees, interest, and advances are repaid out of the life insurance policy’s death benefit
Death benefit paid to designated beneficiaries
– Surplus money, after all fees and advances are repaid, goes directly to the beneficiaries of the life insurance policy
Immediate access to funds upon loan approval
– In most cases, viatical loan funds will be wired to the indicated bank account within 48 hours of wrapping up the loan process and receiving confirmation from the life insurance carrier
Potentially increased advance amount with rapid disease progression and re-evaluation
– There’s also no need to worry that improvement in the condition of the viator will cause the loan to come due early.
Problems with participating in a viatical loan
There are a few things to be aware of when making the decision to participate in a viatical loan. These problems don’t occur with every loan, or in every situation.
– Any funds from the viatical loan that represent a gain in income could be taxed as regular income unless the insured has less than two years to live per their medical diagnosis. Tax codes from state-to-state vary, of course. It’s best to consult a tax professional with experience in viatical loans and settlements before making a final decision.
Loan proceeds may affect public assistance and Medicaid levels
– This also varies by state. Be sure to fully understand how loan funds received will change any public assistance funds, housing requirements, and Medicaid benefits before agreeing to participate in a viatical loan.
– The amount of the loan fees in any individual case varies widely. Get more than one offer when searching for a viatical loan and compare fees as part of the evaluation process.
Well-researched viatical loans can take months to complete
– While some companies offer a “fast track” program, the brutal truth is that to get the best deal, it’s important to compare offers between companies and make the decision with the help of a tax professional and financial advisor.
If you decide to pursue the option of a viatical loan, compare it to other similar options. Viatical settlements, borrowing from the cash value of the policy, an accelerated death benefit (ADB) through the current life insurance provider, combining viatical settlements with ADB, and a reverse mortgage are all worth exploring, as well.
Ovid is a life settlement exchange. We instantly match you with institutional buyers who are interested in your policy, based on you and your policy profile. Getting an offer for your policy from Ovid buyer partners is completely free. If you do want so sell your policy, Ovid has proven to help obtain average payouts above the industry average. We’re based in San Francisco and have been featured in Forbes, US News, Business Insider for the incredible work we do for consumers. You can learn more about Ovid here.