Approximately 530,000 households file for bankruptcy every year, medical expenses cause 62.1% of these bankruptcies. With the high cost of cancer treatment and the fact that medical experts expected over 1.7 million people in the United States to be diagnosed with cancer in 2019, it’s not surprising that medical expenses can push people into dire straits.
Medical issues are only one of the reasons people face financial hardship. Divorce, job loss, natural disasters, and poor investments can all lead to financial challenges for millions of Americans. If you need extra funds, you may be trying to determine whether a life or viatical settlement is the best option for you. Learn about these settlement options, who qualifies for them, and their advantages and disadvantages.
What is a viatical settlement?
A viatical settlement refers to the sale of your life insurance policy to an independent buyer. The person who owns the life insurance policy contacts a viatical settlement company and a viatical settlement broker then helps them sell their policy. The settlement company finds a suitable buyer and makes the arrangements for the sale of the life insurance policy. The seller receives a single cash payment from the buyer in exchange for their policy. The lump-sum payout depends on the value of the life insurance policy and the life expectancy of the applicant, and will inevitably be less than the death benefit that the life insurance company would have paid upon the policyholder’s passing. Still, a viatical settlement can be a great option if you have expenses, such as medication or medical treatments, that need to be paid for immediately to alleviate debt and avoid bankruptcy.
What is a life settlement?
You can contact a life settlement company and discuss your policy with them, and the company will locate a buyer. Sellers receive a lump sum of cash as payment for their life insurance policy. Life settlements can be obtained by anyone, regardless of a terminal diagnosis, whereas a viatical settlement contract depends on the applicant have a terminal illness. Also, life settlements are considered taxable income, whereas viatical settlements are not traditionally taxable.
Which type of settlement is better?
Both life and viatical settlements have benefits, and several factors will determine which option is the right one for you.
Viatical settlements are only available to individuals who have been diagnosed with a terminal or chronic illness. To qualify, the policyholder must establish their medical condition, and usually, they are expected to live for less than two years from the date of sale. The seller may also be required to provide updates about their condition as part of the sale terms.
Life settlements are available for all policyholders. While you do not have to be terminally ill to qualify, there are other critical differences between life and viatical settlements. As mentioned above, the money from a viatical settlement contract is tax-free, but some of the money people receive for life settlements may be taxable.
Are there other ways to cover medical costs?
Viatical settlement contracts can be an excellent option for individuals who need cash to cover medical or personal expenses during their final days. Still, they aren’t the only financial options people who are terminally ill or suffering from a chronic illness can consider.
Prescription discounts are available with a free discount card for medications. America’s Pharmacy works with over 60,000 pharmacies across the United States and they receive a discount when they make bulk purchases of prescription medications. They pass those savings on to individuals who apply for a discount card. The card is accepted at independent and chain pharmacies from coast to coast, including Rite Aid and Walmart. Applying for a prescription discount card can allow you to save up to 80% off your prescriptions and medications.
The American Cancer Society runs the Road to Recovery program, which provides cancer patients with free transportation to medical appointments. They are just one of several non-profit organizations that help ill people with transportation and personal care needs. Some organizations also offer cash assistance.
Individuals who are terminally ill may also be eligible to receive disability benefits and food stamps.
What are the advantages of these settlements?
One critical advantage viatical and life settlements offer is access to immediate cash funds. Another benefit is that the person who sells their policy is no longer responsible for making payments for the policy. The buyer assumes those costs when they purchase the policy, which lowers the monthly expenses of the ill person.
There are no restrictions that apply to the funds. Sellers are free to use the cash they receive as they see fit. Sellers will also receive more than the cash-out value of their life insurance policy (although less than the full death benefit as it would have been received upon passing).
What are the disadvantages of life and viatical settlements?
The buyer becomes the policy’s beneficiary, which means that the seller’s beneficiaries will not receive the death benefit. If the seller has paid off their mortgage and prepaid for their funeral arrangements, this may not be a concern. If the seller leaves debts after they pass away, their family will be responsible for those expenses and will not have the death benefit as a cushion to help with those expenses.