Eligibility For Viatical Settlements

Most Viatical Settlement companies have set policies and procedures to determine which life insurance policies they will purchase:

Typical Requirements include:

• life insurance policy has been owned and in force for at least two years;
• any beneficiaries have signed a waiver of release;
• policy holder has a terminal illness with a life expectancy of two years or less.
• provide a release allowing the viatical settlement provider complete and full access to your medical records.
• The Life Insurance company issuing your policy must be financially sound.

In the case that your life insurance policy is provided by your employer it must be able to be converted into an individual policy, or otherwise be guaranteed to remain in force before it can be assigned.

Financial Implications

Collecting accelerated benefits or making a viatical settlement also may affect your eligibility for public assistance programs based on financial need, such as Medicaid. The federal government does not require policyholders either to choose accelerated benefits or cash in their policies before qualifying for Medicaid benefits. But once the policyholder cashes in the policy and receives a payment, the money may be counted as income for Medicaid purposes and may affect eligibility.

In 1997, Congress changed the tax code so that proceeds from accelerated benefits and viatical settlements are tax-exempt. Under the law, proceeds from accelerated benefits and viatical settlements are tax-exempt as long as your life expectancy is less than two years and the viatical settlement company is licensed-if you live in a state that requires licensing. If your state does not require viatical settlement companies to be licensed, state law will still require that these companies meet other standards and make certain other disclosures.

Most states have declared that payments of accelerated benefits or viatical settlements are exempt from state taxes. However, some states do not give these payments tax-free status. Because of the complexity of the situation, seek professional tax advice from a lawyer, an accountant, or a financial planner. Guidelines for Consumers

The daily physical and emotional demands of a terminal illness can be overwhelming, and financial burdens can seem insurmountable. If you are considering making a viatical settlement on your life insurance policy -- or if you are helping someone with this decision -- these consumer guidelines should help you avoid costly mistakes and make the choice that's right.

• Contact two or three viatical settlement companies to make sure offers are competitive, and be aware of prevailing discount rates. A viatical settlement company may pay 80 percent of the face value of a policy to a person whose life expectancy is six months or less.
• Check with your state insurance department to see if viatical settlement companies or brokers must be licensed. If so, check the status of the companies with whom you are considering doing business.
• Don't fall for high pressure tactics. You don't have to accept an offer, and you can change your mind. Some states require a 15-day cooling off period before any viatical settlement transaction is complete.
• Verify that the investor or the company has the money for your payout readily available. Large companies may have cash on hand; smaller ones may have uneven cash flows or may be "shopping" the policy to third parties.
• Insist that the company set up an escrow account with a reputable, independent financial institution before the company sends the offer papers for your signature. An escrow account will let you be sure that the funds are available to cover the offer.
• Insist on a timely payment. Once the insurance company has made the necessary changes, you should get your money within two to three business days from the escrow agent. No more than a few months should go by from the initial contact with the company to the closing. Check with your state Attorney General's office or department of insurance to see if there are complaints against the company before you do business.
• Ask the company about possible tax consequences and implications for public assistance benefits. Some states require viatical settlement companies to make these disclosures and tell you about other options that may be available from your life insurance company.
• Ask about privacy. Some companies may not protect a policyholder's privacy when they act as brokers for payouts from potential investors.
• Contact a lawyer to check on the possible probate and estate considerations. If you make a viatical settlement, there will be no life insurance benefits for the person you originally designated as beneficiary.

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