Life Settlement VS. Viatical Settlement – What Is The Difference?

Did you know you can sell all or a portion of a life insurance policy, even term insurance?

(4-minute read)

Life insurance premiums can get expensive, and many people find themselves with burdensome payments on policies they no longer want. When faced with the decision on what to do with that policy, it can be confusing to know whether a life settlement or a viatical settlement is the right choice when selling your life insurance policy. 

Let’s take a look at these two types of settlements and examine the ins and outs of these types of transactions. 

What is a lifetime settlement?

The lifetime settlement meaning is fairly simple: this refers to the transaction of selling your existing insurance policy on the secondary market for a one-time cash payment. Once the sale is complete, the third-party purchaser takes over paying the premiums and receives the death benefit when the insured dies.

Why do people choose a lifetime settlement?

There are many different reasons for choosing a life settlement. Some people may have a policy that is old or redundant, and are looking for ways to stop paying the premiums without losing all the money they’ve put into it. Others may have unexpected expenses or life changes where they need an influx of cash to help meet their needs. 

Because a life settlement typically nets significantly more cash than other ways of cashing out a policy, many people choose this option. 

What is a viatical settlement transaction?

A viatical settlement is a transaction where someone who is terminally or chronically ill discounts their life insurance policy and sells it for cash. Similar to a life settlement, the buyer receives the death benefit. The buyer also pays all the future premiums left on the policy. 

What influences a viatical settlement?

Because viatical settlements are designed for people who are terminally or chronically ill, cashing out these types of policies can come with some emotional circumstances. Let’s look at a viatical settlement example

Mary Jones was worried when her doctor ordered extra tests at her annual physical. At age 74, she felt pretty healthy, except for a cough that hung around after she gave up smoking 15 years ago. Sadly, Mary received the news that no one wants to hear —she was in the late stages of lung cancer that had been missed by her healthcare providers due to the minimal symptoms she displayed. She was given only six to eight months to get her affairs in order. Faced with all the expenses that come with this type of diagnosis, Mary sought out a viatical settlement for her life insurance policy so that she could afford to move into a hospice facility where she could be comfortable for the rest of her life. 

Life settlement vs viatical settlement

The main difference between a life settlement and a viatical settlement is the criteria required to use the option, like the life expectancy of the seller. Viatical settlements are designed for those who have a terminal or chronic illness with a life expectancy of up to two years or less, depending on the company, and are considered slightly riskier for the buyer, due to the fact that the original holder of the policy may not pass away within the expected timeframe. They may live a shorter or longer amount of time than expected. 

Life settlements are designed for people with longer life expectancies and allow those with unwanted policies the opportunity to enjoy a nice influx of cash that is usually much higher than what they would receive for surrendering the policy or letting it lapse. Life settlements do not have any illness requirements, unlike viatical settlements that are only for those who have a serious medical diagnosis. 

Taxes are another difference between these two. Viatical settlement taxation is usually favorable, and is typically free of income tax, meaning that Mary will most likely get to keep the entire sum of money she receives to pay for her medical bills. Life settlement funds are taxed as income on your tax return and you do have to pay some taxes before enjoying your money. 

What type of settlement is right for me?

Deciding on what type of settlement to pursue can be a difficult decision. If you are looking for extra money to help cover medical bills for a terminal illness, then a viatical settlement may work well for you. If you have an unwanted policy and are searching for extra money to help with your expenses or retirement funds, then a life settlement may be the right fit. Regardless of your circumstances, Life Settlement Advisors can help. 

Here at Life Settlement Advisors, we dedicate our business to helping individuals achieve greater returns on their life insurance because we know how valuable these investments are to policyholders. A life settlement empowers the policy holder to sell all or a portion  of their whole life insurance as an asset the same way they would sell a car, house, or stocks and bonds.

Life settlements may not work for everyone, but they’re a valuable option that many people don’t consider. If you have a life insurance policy you’re planning to sell, you can contact us at any time to discuss your options. You can also see if a life settlement is a good fit for you by using our qualification calculator.


Leo LaGrotte
Life Settlement Advisors

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