What Does Viatical Settlement Mean?
A viatical settlement is when an investor buys an existing life insurance policy from another person. The investor makes an upfront cash payment to the policy holder and the policy holder transfers over ownership of the insurance policy. When the seller dies, the investor will receive the death benefit. The investor pays less than the life insurance death benefit for the viatical settlement to make a profit when the seller eventually dies.
Insuranceopedia Explains Viatical Settlement
Viatacal settlements are often made by viatical settlement companies, companies that specialize in these transactions. However, any investor can make a viatical settlement.
These transactions can be a little risky. Investors are making a large upfront payment for the policy and need to be able to predict the seller’s life expectancy. If the seller lives longer than expected, it will lower the investor’s return. That’s why many viatical settlement companies only make deals with people who have been diagnosed with terminal illnesses. On the other hand, if the seller dies earlier than expected, the investor will earn a higher return.