Viator: Definition, Viatical Settlements, and Real-World Examples
DA
Summary:
Life insurance can take unexpected turns with viators, individuals facing life-threatening illnesses who choose to sell their policies. Explore the nuances of viatical settlements, their impact on policyholders, and the risks involved. This comprehensive guide dives into the what, how, and why of viators, shedding light on a lesser-known aspect of the insurance world.
Compare Life Insurance Providers
Compare multiple vetted providers. Discover your best option.
What is a viator?
A viator, confronted with the daunting reality of a life-threatening illness, makes a challenging choice—to sell their life insurance policy. This decision is driven by the need to unlock a portion of the death benefit while still alive. Viators often find themselves in this predicament due to the financial strain of expensive medical treatments that fall outside the purview of their health insurance coverage.
Understanding viators
Within the realm of life insurance, a viator, an individual insured under a life insurance policy, embarks on a viatical settlement journey. This process involves the viator receiving a percentage of the death benefit while still in the land of the living. Despite the financial relief it provides, this transaction comes with a significant trade-off—the viator relinquishes their life insurance protection.
Reasons for a viatical settlement
The decision to pursue a viatical settlement is not taken lightly. Viators find themselves at this crossroads primarily to finance healthcare treatments that aren’t adequately covered by their existing health insurance plans. This is particularly prevalent among individuals facing terminal or critical illnesses, where the urgency of medical interventions demands immediate financial resources.
Viatical settlement providers
For viators, the path to selling their life insurance policy involves engaging with a crucial player—the viatical settlement provider (VSP). These entities play a pivotal role by acquiring policies at a discounted rate. VSPs typically compensate viators at a range of 50% to 70% of the death benefit, undertaking the responsibility of future premium payments.
Real-world example of a viator
Illustrating the complexities of viatical settlements is the case of Ted Smith. Faced with a terminal prognosis, Ted sells his life insurance policy to finance an experimental procedure. Despite the treatment’s success, the viatical settlement provider encounters unforeseen challenges, as Ted’s extended life expectancy prolongs their financial commitment to premium payments.
The bottom line
The landscape of viatical settlements is nuanced, offering both immediate financial relief for viators and potential financial risks for settlement providers. As individuals contemplate this option, careful consideration of the pros and cons is paramount, ensuring that the chosen path aligns with their unique circumstances and financial goals.
Frequently asked questions
What is the typical duration of premium payments by viatical settlement providers?
Viatical settlement providers commit to making premium payments for the duration of the viator’s life. However, the unpredictability of medical outcomes poses financial risks for providers.
Can viators sell any type of life insurance policy?
Yes, viators can sell virtually any type of policy, including term, whole life, or universal policies, providing flexibility in their financial decisions.
How do viators and settlement providers navigate the uncertainties of medical outcomes?
Viatical settlement providers often diversify their risk by purchasing policies from multiple viators, creating a balance in the timing of potential payouts.
What motivates viators to pursue a viatical settlement?
Viators are often motivated by the need to fund costly or experimental therapies that may not be covered by their health insurance. This can include treatments to prolong their life or improve their quality of life.
Are viatical settlements without risk for investors?
No, viatical settlements carry risks for investors. If a viator experiences remission or benefits from experimental procedures, the viatical settlement provider may face unexpected premium payments, potentially resulting in financial losses.
Key takeaways
- Viators sell policies for immediate financial support.
- Tax-free proceeds are received by the viator.
- VSPs typically pay 50% to 70% of the policy’s face amount.
- Heirs lose eligibility for the death benefit.
- Before opting for a viatical settlement, carefully weigh your options.
Share this post: