Co-Founder, Coastal Financial Partners Group, California
The viatical concept is the buying of life insurance policies from the terminally ill. The market grew out of the AIDS epidemic in the 1980s. The policy-owner transfers ownership of the policy to an entity which pays cash for the policy. The cash is often useful to help with medical bills which can be large for end of life care. The value of the policy is likely greater than its cash surrender value but less than its death benefit. The entity makes a profit on the difference between the sale price and the death benefit they collect when the insured dies.
The viatical market evolved into what is now called life settlements where the policies being sold are no longer just involving the terminally ill but also include seniors who have unwanted life insurance policies and desire to get something more than the cash surrender value for them. The financial crisis and miscalculation of life expectancy within the life settlement business caused the investor frenzy of the time to cool sharply several years ago making the transactions less popular today though still viable under idea conditions.
There is actually not a type of life insurance call Viatical Life Insurance, but life insurance is purchased from the policy owner as part of a "viatical settlement", or "life settlement". In order to sell one's policy as part of a viatical settlement, the policy must have cash value and the insured person must have a decreased life expectancy. The purpose is to provide the insured with cash while still alive, while the entities who are buying the policy are banking on making more from the death benefit than what they paid for the policy.
Most new cash value policies now ask whether the policy is being taken out for the purpose of being sold, because this defeats and misrepresents the purpose of life insurance. For those with existing policies who find themselves with a severe or terminal illness, and insurance rich and cash poor, a viatical might be a benefit. But you must be very careful and look at every angle before going down that road.
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The viatical market evolved into what is now called life settlements where the policies being sold are no longer just involving the terminally ill but also include seniors who have unwanted life insurance policies and desire to get something more than the cash surrender value for them. The financial crisis and miscalculation of life expectancy within the life settlement business caused the investor frenzy of the time to cool sharply several years ago making the transactions less popular today though still viable under idea conditions.
Most new cash value policies now ask whether the policy is being taken out for the purpose of being sold, because this defeats and misrepresents the purpose of life insurance. For those with existing policies who find themselves with a severe or terminal illness, and insurance rich and cash poor, a viatical might be a benefit. But you must be very careful and look at every angle before going down that road.