The emotional stress of dealing with one’s own impending death due to a terminal or serious chronic illness is further compounded by the customary increase in medical bills and the additional costs of special care in conjunction with a likely reduction in earning capacity. A viatical settlement may make sense for an insured in this situation if:
- the policy owner is in need of cash to pay medical or other expenses of the insured; and
- other options to meet those needs are not available or are not as attractive.
A life settlement typically isn’t entered into because the insured’s death is impending, but rather because the needs of the policy owner or insured have changed. A life settlement may be indicated when:
- The policy owner or insured no longer needs the life insurance coverage;
- Personal needs coverage is no longer needed because the children are grown up and are financially independent.
- Buy-sell coverage is no longer needed because the buy-sell arrangement has been terminated.
- Key person coverage is no longer needed because the insured is no longer employed by the business.
- Estate tax liquidity coverage is no longer needed because changes in estate tax laws or the size of the insured’s estate now exempt the estate from estate taxes.
- The policy owner can no longer afford the premiums and wishes to be relieved from the payment of further premiums;
- The policy owner desires to receive a lump-sum payment of cash in exchange for the policy that can be used for any purpose; and
- Other options to eliminate the coverage, eliminate the premium obligations, or obtain liquidity are not available or are not as attractive (see “Frequently Asked Questions” below for a discussion of alternatives to a life settlement).
Reproduced with permission. Copyright The National Underwriter Co. Division of ALM