In the Catholic Church, the Latin term “viaticum” refers to a specific situation in which the Eucharist is given to a person when they are near death and remain in a state of mortal sin. In secular language, it simply means any kind of provision or allowance given to a person in need.
It is from this etymological origin that the phrase “viatical settlements” is derived, and the concept itself remains fairly similar today. Viatical settlements are often chosen by people in need of money quickly who have no other existing assets they can sell. Since life insurance can be sold to a third party and the original policy owner can cash in substantially, for the elderly and terminally ill, a viatical settlement can be a wise choice.
However, it is important to keep in mind that while viatical settlements allow for a significantly easier experience during the final stages of a person’s life, they are not as clear-cut as you may believe, nor are they always the best choice for every individual. If you are considering selling your life insurance, you should be aware of the consequences, both positive and negative.
Buyer and seller relationship
You might be thinking about viatical settlements from your point of view, but remember, where there is a seller, there is always a buyer. Investors who keep their eye on life settlements are considered, by some, to be rather morbid types, and it’s easy to see why. They wait, sometimes for many years, for the original policy owner to pass away before obtaining any return on investment.
As you can imagine, this type of investment is notoriously risky. Not only are investors operating without any knowledge of when they will receive their money, but they are legally permitted to investigate the policy owner’s health and medical history periodically. Investors are often promised very high guaranteed returns and don’t always take the time to consider all the possibilities.
Of course, as the seller, you are expected to do your homework, too, and if you do, you’re a step ahead of most investors. Since you already know that your potential buyer is going to be checking in on your condition, it is important to be completely honest on your application, especially in the section that asks about medical history.
If you are receiving food stamps, social assistance, or Medicaid, this may also be relevant, so it’s a good idea to include information about all sources of income. Finally, find out if there is a seller’s remorse clause; if you decide you would like to back out, you want to be certain you can obtain a refund.
Examine all options
A viatical settlement is not for everyone, and plenty of financial experts advise against taking this route from either the buying or selling side unless you have exhausted all other options for financial security.
If you are elderly or terminally ill, it might seem like a dream come true. However, as with anything, you should read the fine print before going in blind. It’s also advisable to do your research on a variety of financial and estate planning companies before you take the plunge, especially since the viatical settlement industry is known to use misleading language and make false promises. Scams run rampant, red flags are ignored, and high payoffs don’t always come through.
That said, there are reputable and honest financial planners who will be more than happy to guide you through the process of planning for your life and death. They will tell you to exercise caution and help you parse through the complicated language that is often used to target vulnerable populations trying to make last-ditch financial decisions. Sophisticated and reliable financial planning will help you make a responsible choice.