A Viatical or Life Settlement is the sale of an existing life insurance policy by a chronically or terminally ill individual. The policy owner receives cash for his or her life insurance policy-an accelerated death benefit or lump sum payment-in exchange for a policy that he or she no longer wants or needs. The multi-step procedure to viaticate (sell) an in-force life insurance policy generally takes 4 to 6 weeks.
- The client or an authorized representative signs the Life or Viatical Settlement application is completed, and all medical and insurance release of information forms.
- The application and forms are submitted to a Viatical or Life Settlement broker
- Viatical or Life Settlement offers (bids) received from the broker are reviewed.
- After accepting an offer, the change of ownership and change of beneficiary forms are signed, thereby transferring the ownership rights to the policy to the buyer
- Within a few days of the policy buyer’s (funding company’s) receiving confirmation of the change of ownership and beneficiaries from the life insurance company, the buyer is required to make payment in the form of a bank wire or certified check to the policy seller (viator).
There are a number of things to keep in mind when considering the sale of a client’s insurance policy:
- First, the insured (which may or may not be the owner of the policy) will be signing release forms allowing disclosure of his or her private medical and insurance records.
- Secondly, the original beneficiaries on the life insurance policy will give up the death benefit on the life of the insured. To avoid problems, a funding company (buyer) requires all beneficiaries to sign off on the Viatical or Life Settlement.
- Thirdly, this is an irrevocable procedure; once the policy is sold the policy seller cannot change his or her mind. However, under current state laws there is generally a 15-day cooling off period during which the policy seller can change his or her mind and rescind the transaction by returning the settlement to the funding company, thereby having the ownership of the life insurance restored