Viatical settlement

Viatical settlement

A viatical settlement is the sale of a life insurance policy by the policy owner before the policy matures. Such a sale, at a price discounted from the face amount of the policy but usually in excess of the premiums paid or current cash surrender value, provides the seller an immediate cash settlement. Generally, viatical settlements involve insured individuals with a shorter life expectancy. In countries without state-subsidized healthcare and high healthcare costs (e.g. United States), this is a practical way to pay extremely high health insurance premiums that severely ill people face. A life settlement is a similar transaction but involves insureds with longer life expectancies.

From the perspective of the investor, purchasing a viatical settlement is similar to buying a zero coupon bond with an uncertain maturity date. The return depends on the seller's life expectancy and when he or she dies.

Viatical settlements grew in popularity in the United States in the late 1980s, when the AIDS epidemic first hit. The early victims of AIDS in the U.S. were largely gay men, many of whom were not particularly old. They often had no wives or children (the traditional dependents in a life insurance policy), but they had life insurance policies through employment or due to other investment activity. The dependents on the policies were often their parents who did not need the money. Viatical settlements offered a way to extract value from the policy while the policyholder was still alive.

At the time, the AIDS mortality rate was very high, and life expectancy after diagnosis was typically short. Investors were reasonably sure that they would collect in a relatively short time. This combination of events caused a surge in viatical settlements as both investors and viators saw an opportunity for mutual benefit.

Viatical settlements eventually developed a bad reputation in the investing community. The companies that purchased them from policy holders typically resold them to individual investors. Salespeople were paid large commissions to push the settlements, which were not conventional investments and which were misunderstood by many investors. The government regulatory agencies had little experience and few regulations dealing with viatical settlements, and the industry attracted some unscrupulous dealers.

Despite the bad experience of some investors, viatical settlements remain an often valuable tool for the personal financial management of many ill people. A 2002 study showed that among hospice financial counselors who have had experience with viatical settlements, most report positive experiences. Badreshia, S., Bansal, V., Houts, P. S., Ballentine, N.: [http://www.ncbi.nlm.nih.gov/entrez/query.fcgi?cmd=Retrieve&db=PubMed&list_uids=12406051&dopt=Abstract "Viatical settlements: effects on terminally ill patients"] , "Cancer Practice", 2002 Nov-Dec, 10(6):293-6. Read at "Entrez PubMed". URL Accessed November 17, 2004.]

In 2007, the North Dakota Legislature passed SB 2268, a piece of legislation which regulates the viatical settlement industry within the state.Fact|date=August 2007

References

See also

* Life settlement


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Look at other dictionaries:

  • viatical settlement — vi·at·i·cal settlement /vī a ti kəl / n [probably from Latin viaticum provision for a journey]: an agreement by which the owner of a life insurance policy covering a person (as the owner) with a catastrophic or life threatening illness receives… …   Law dictionary

  • Viatical Settlement — An arrangement in which someone with a terminal disease sells his or her life insurance policy at a discount from its face value for ready cash. The buyer cashes in the full amount of the policy when the original owner dies. Also referred to as a …   Investment dictionary

  • viatical settlement — viatical set·tle·ment set əl mənt n an agreement by which the owner of a life insurance policy that covers a person (as the owner) who has a catastrophic or life threatening illness receives compensation for less than the expected death benefit… …   Medical dictionary

  • viatical settlement — n. An insurance settlement paid to an investor who holds a life insurance policy purchased at a discount from a dying policyholder. Example Citation: In a Wall Street response to the Aids epidemic, American investors have in recent years been… …   New words

  • viatical settlement — noun Etymology: probably from viaticum Date: 1991 an agreement by which the owner of a life insurance policy that covers a person (as the owner) who has a catastrophic or life threatening illness receives compensation for less than the expected… …   New Collegiate Dictionary

  • viatical settlement — Arrangement by which a terminally ill patient s life insurance policy is sold to provide funds while the insured (viator) is living. The buyer (funder), usually an investment company, pays the patient a lump sum of 50–80% of the policy s face… …   Universalium

  • viatical settlement — [vʌɪ atɪk(ə)l] noun an arrangement whereby a person with a terminal illness sells their life insurance policy to a third party, in order to benefit from the proceeds while alive. Origin 1990s: viatical from L. viaticus relating to a journey or… …   English new terms dictionary

  • viatical settlement — noun 1. cash derived from sale of an insurance policy by a terminally ill policy holder • Hypernyms: ↑advance death benefit 2. sale of an insurance policy by a terminally ill policy holder • Syn: ↑viaticus settlement • Hypernyms: ↑liquidation, ↑ …   Useful english dictionary

  • settlement — /set l meuhnt/, n. 1. the act or state of settling or the state of being settled. 2. the act of making stable or putting on a permanent basis. 3. a state of stability or permanence. 4. an arrangement or adjustment, as of business affairs or a… …   Universalium

  • viatical — noun see viatical settlement …   New Collegiate Dictionary

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