Viatical Settlement
A financial transaction where a terminally ill person sells their life insurance policy to a third party for a lump sum payment that's less than the death benefit but more than the cash surrender value. The buyer becomes the new beneficiary and continues paying premiums until the insured's death.
Example
“Facing mounting medical bills, Maria entered into a viatical settlement, selling her $200,000 life insurance policy for $150,000 to help pay for her cancer treatment.”
Memory Tip
Remember 'Viaticum = final journey' - it's selling life insurance for the final journey when terminally ill.
Why It Matters
Viatical settlements provide terminally ill individuals with immediate cash to pay for medical expenses, improve quality of life, or handle financial obligations. This can be crucial when facing expensive treatments not covered by health insurance or when families need immediate financial relief.
Common Misconception
Many people believe viatical settlements are the same as life settlements for healthy seniors. However, viatical settlements specifically involve terminally ill individuals with life expectancies typically under two years, while life settlements involve healthy seniors selling policies they no longer need.
In Practice
Consider Robert, age 65, diagnosed with terminal cancer and a life expectancy of 18 months. He owns a $300,000 life insurance policy with a cash surrender value of $45,000. Through a viatical settlement, he sells the policy for $210,000 (70% of the death benefit). The buyer pays the remaining premiums and collects the full $300,000 upon Robert's death, while Robert receives immediate funds for medical care and living expenses.
Etymology
Derived from the Latin word 'viaticum,' meaning provisions for a journey, historically referring to the Eucharist given to someone near death for their final spiritual journey.
Common Misspellings
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