Health insurance policies only cover for part of the costs involved in the treatment of serious illnesses like cancer. If you suffer from a terminal illness like this, you can have a hard time looking for ways to fund your medical care and maintain a reasonable standard of living.
A life insurance policy is only designed to offer financial security to the family of the holder after he passes away. If you have a serious illness and find a life insurance policy lying around uselessly when you need money right now, there’s a way you can use it.
A viatical settlement may be able to help
Businesses called viatical settlement companies deal in the purchase of life insurance policies from people who have a terminal illness and don’t expect to live very long.
When you sell your policy to a viatical settlement company, you get a settlement check right then. The company, then, becomes the effective owner of the policy. They pay the premiums and collect on the policy when you pass away. You get the money you need and the company gets to make a profit on the deal.
How does a viatical settlement work?
Viatical settlement companies employ actuaries and medical professionals who have expert knowledge on how long any terminal illness is likely to allow a person to live.
When you approach them with a policy to sell, they use their life expectancy data to determine the number of premiums they might have to pay on your policy before they get to collect on the death claim. They then make a few calculations.
They total up the value of the premiums that they need to pay and the interest they lose on the money they put up to pay those premiums. They also give themselves a profit margin for the risk that you will live longer than their calculations show them. They add all these sums up, subtract the total from the death claim settlement that the policy pays out and offer to give you the rest.
If you find the offer to be good enough, you can sign transfer documents to make full ownership rights of the policy over to the viatical settlement company. They send the transfer documents to the insurance company and put the transfer on the record.
Determining your eligibility
The U.S Secretary of Health and Human Services provides guidance on what constitutes being chronically or terminally ill.
If you are unable to perform at least two normal activities of daily living such as eating, using the toilet or bathing and dressing yourself, then that would be classed as being chronically ill. If you are in need of substantial protective supervision for health and safety reasons or as a result of severe cognitive impairment or have a level of disability determined by the HHS, then this would also be considered to be a qualifying status.
Any person who is terminally ill or has a sickness or illness that can be reasonably expected to lead to their death within a two year period would also be qualified to proceed with a viatical settlement, based on their medical status.
Things to think of before you sign up for a viatical settlement
Just as you can shop around when buying insurance and receive different quotes from different companies, you need to shop around for the best viatical settlement. Different companies use different risk calculations. Many people consider hiring a viatical life insurance lawyer before signing on a deal. These lawyers use their expertise in viatical settlement deals to tell them if they have the best deal possible.
In some circumstances, a viatical settlement may not be a good idea
If your illness is so serious that you may conceivably pass away very soon, a viatical settlement may simply represent a huge loss. You just end up giving the company a huge cut for essentially no risk. If you determine to suffer through your financial hardship without additional funds, the insurance company behind the policy will simply pay out on its own when you pass away. If there are medical bills and debts to pay after you pass on, losing money to a viatical settlement may be difficult on your family.
In most states, the law permits you to change your mind on a viatical settlement deal within 2 to 4 weeks of signing. You simply need to contact the viatical settlement company and send them a check by certified mail for the settlement that you’ve received.
Tom Grant is a financial advisor. He frequently writes for personal finance blogs helping people get the advice they need to live comfortably.