What is a Viatical Settlement Contract?

A Viatical Settlement Contract is the sale and transfer of the legal right to the death benefits of a life insurance policy through an irrevocable beneficiary designation. This is done by a terminally ill individual, or viator, with a third party investor prior to the viator’s demise. The death benefits are payable upon policy maturity to the investor.

I have never heard of Viatical Settlement Contracts before, are they new?

No. People have been selling their insurance benefits for over three hundred years… as long as there has been an insurance industry. Legally referred to as a “transfer for value,” most Viatical Settlements were arranged privately between family or friends. The industry as it is known today was started in this country in 1988.

Why has this form of investment become so much more common?

The main reason is the AIDS epidemic. People with AIDS have a very predictable life expectancy. Based on the medical condition of the viator, a probable holding period can be established and a rate of return predicted within reasonable parameters. The total return is guaranteed by the financial strength of the insurance company that issued the policy and is responsible for payment of the death benefits. Another reason is that so many investors and financial planners are looking for investment opportunities that are not tied to the performance of the stock market.

Why would individuals want to sell their life insurance benefits?

Terminal illness drains resources. The proceeds from the Viatical Settlement may pay for medical expenses that health insurance will not cover. Many viators have run out of health benefits and need money to pay for standard medical treatment of symptoms. Others are unable to meet their daily living expenses.

See also…

Healthcare Law Forum

Insurance Issues