What is a
The Viatical Settlement is one of two tax-exempt Programs created by HIPAA that allow a Policy Owner to sell an existing insurance policy for cash. The Insured must obtain a physician’s certification of probable death within 24 months. A Funder buys the policy, makes a lump-sum payment to the Policy Owner, pays premiums, and collects the death benefit.
Program Overview
The Policy Owner policy receives a single lump-sum payment.
The tax-exempt Viatical Settlement Program accepts Insureds as young as age 30. They must obtain a HIPAA-compliant letter from a physician stating that death may reasonably be expected within 24 months or less.
American Life Settlements will determine how many other Programs might be available, and seek bids based on the Policy Owner’s instructions. Depending on variables, it might be possible to secure quotes for up to five other Programs. Please see this FAQ for details.
Viatical Settlement
| Features | |
|---|---|
| Payout Structure | All cash now, no benefit later |
| Minimum death benefit of policy | $50,000 |
| Minimum Age | 30 |
| Longest probable lifespan | 2 Years |
| Tax status of sale | Tax-exempt |
If the Insured does not qualify for a Viatical Settlement, what other Programs might be available?
To qualify for a tax-exempt Viatical Settlement, the Insured must obtain a physician’s HIPAA-compliant letter that death is probable within 24 months or less. If that letter cannot be obtained at this time, the availability of other Programs would depend on the specifics of the case, notably health, age, type of policy and policy size, and gender. Here is a recap of possibilities:
Should the policy be sold for a Viatical Settlement if it has an Accelerated Death Benefit feature?
Our Accelerated Death Benefits section goes into much more detail because this is a complicated, confusing issue with many variables. As always, it will be easier to call (888) 247-3659. What follows is an overview.
The Viatical Settlement requires a physician’s HIPAA-compliant letter stating that death is probable within 24 months or less. If the physician cannot sign the letter because the Insured appears likely to live longer than 24 months, this logically means the Accelerated Death Benefit (ADB) would not be available because it requires certification of likely death within 6 months, though some carriers will accept ADB Claims up to 12 months. The policy could still be sold, just not as a Viatical Settlement.
For purposes of this FAQ let us assume that the Insured’s physician agrees to sign the HIPAA 24 Month letter, and to certify likely death within the carrier’s ADB shorter timeline. The Policy Owner’s best strategy is to file an ADB Claim while simultaneously submitting the policy to us for quotes from every possible Program. This saves time whether the ADB Claim is approved or declined.
Further assuming the ADB is paid, the next question is whether to keep the reduced policy and continue paying premiums, or transact it and quit paying premiums. Depending on case specifics, the balance of the policy might receive bids for a Viatical Settlement, Private Policy Loan, Retained Benefit Life Settlement, or even a Long-Term Care Life Settlement.
Check out our Program Comparison page to review these options side-by-side.
Does the Viatical Settlement require a Federal form for the physician’s statement that the Insured might live no more than 24 months?
There is no Federal form letter, but our team can provide clients with a generic template that works.
If the Insured lives more than 24 months after the physician writes the letter, is the policy sale still tax-exempt?
There is no time-limit to this letter. No matter how long the Insured might live, a Viatical Settlement policy sale remains tax-exempt.
Can Survivorship (Joint Life) policies be sold as a tax-exempt Viatical Settlement?
Survivorship policies are underwritten on the healthier of the two Insureds. Very few Survivorship sales involve two terminally ill Insureds, especially as female Insureds of such policies are historically younger than the male. For the sale to be HIPAA-qualified as a tax-exempt Viatical Settlement, both Insureds would have to obtain a physician’s letter stating that death may reasonably be expected within 24 months or less. If either could not secure this letter, the sale would be classified as a Life Settlement and potentially subject to taxation.
I want to look at the actual text regarding the tax-exempt Viatical Settlement and the Accelerated Death Benefit, and the text regarding their tax-exemption.
