Family Law

Planning for your financial needs can be stressful and challenging. When you’re making decisions about savings accounts, investments, and life insurance policies, you must consider multiple factors to ensure you choose the best option.

When you’re researching life insurance policies, you may hear about viatical settlements and life settlements. Both viatical and life settlements are available to people who own valid life insurance policies and can provide a way to access a lump sum of cash. Still, there are some distinct differences between life and viatical settlements. It’s a good idea to learn about the distinctions between these options to ensure you make the best financial decisions when choosing or selling your life insurance policy.

What’s a viatical settlement?

When a person pursues a viatical settlement, they sell their life insurance policy to a third-party buyer. The top viatical settlements usually involve qualifying to be a viator and working with a viatical settlement company to locate a suitable buyer. The buyer pays a lump sum of cash in exchange for the policy. They assign a new beneficiary who receives the policy’s death benefits when the policyholder dies.

What’s a life settlement?

Life insurance policyholders can also opt to sell their insurance policy for a life settlement. The seller usually works with a life settlement company or broker. The life settlement company locates a buyer and handles the paperwork to complete the transaction. The buyer makes a single cash payment to acquire the life insurance policy. Like viatical settlements, the new policy owner appoints a new beneficiary who receives the policy’s death benefits when the policyholder dies.

How do these settlements differ?

Viatical and life settlements are similar. Both involve selling your life insurance policy. With both options, the buyer assumes responsibility for any outstanding monthly premiums owed to maintain the policy. Buyers who purchase life insurance policies through life and viatical settlements pay more than the insurance policy’s cash value. This means people who obtain life and viatical settlements receive more money than they would if they cashed in their policy through their insurance company. With both life and viatical settlements, the original policyholder forfeits the policy’s death benefits as part of the terms of the sale.

There are some critical distinctions between viatical and life settlements, however. Buyers pay more for viatical settlements than life settlements. This is because viators must have a terminal illness or chronic illness to qualify for a viatical settlement. Viators typically have a life expectancy of two years or less. Their viatical settlement company must review their medical records to ensure they qualify before finding a buyer. How much money the viator receives is based on their diagnosis and life expectancy.

Anyone with a valid life insurance policy can opt to pursue a life settlement without sharing medical records or disclosing the reason for the sale. For example, if you have two life insurance policies and are working on your retirement planning, you may opt to sell a life insurance policy and use the funds to meet your savings goals. You can also opt to sell your life insurance policy to reduce your monthly expenses because the buyer will assume responsibility for the monthly premiums.

How can you use the funds from life and viatical settlements?

There are no restrictions that apply to the funds from life or viatical settlements. A viator may opt to use a viatical settlement to cover their medical expenses and pay for personal care while they’re receiving treatment. They may also choose to use the funds to pay off their mortgage to ensure their spouse can afford to remain in their home after they pass away or establish trust funds for minor dependents.

Viatical and life settlements can also provide the funds to purchase a new home. For example, you can use the funds to invest in new construction condos in Atlanta. If you’ve always dreamed of living in Midtown, you can choose a condo in your price range to suit your personal needs. You can choose between one-bedroom, two-bedroom, and three-bedroom condos and review available floor plans online. Superior condos come in buildings loaded with amenities for residents to enjoy, including a saltwater pool, an indoor dog park, and a fitness center. Investing in new construction is an excellent way to buy the home of your dreams. Using your life or viatical settlement funds will enable you to afford a new home without jeopardizing your retirement savings. West Midtown offers easy access to boutiques, restaurants, art galleries, and a 280-acre park, making it a desirable neighborhood only minutes from downtown Atlanta.

If you aren’t shopping for a house, you can use the funds for any other purpose you choose. If you want to complete your bucket list, you can use your funds to travel around the world, ride in a hot air balloon, travel through the Grand Canyon on horseback, or cut a record. You can also use the money to go to college, start a business, or learn a trade. You can use your settlement payout to fulfill lifelong dreams or cover the costs of crucial needs.

Are the funds from viatical and life settlements taxable?

You don’t have to pay taxes on viatical settlement payouts, which means you have full access to the entire lump sum amount you receive in exchange for your life insurance policy. You won’t have to worry about your funds jeopardizing your social security benefits or other financial assistance you may receive.

You may have to pay taxes on life settlement funds, which is why you must work with a reputable life settlement company to navigate the process. You may be able to offset your tax obligations by creating an individual retirement account (IRA) because you can deduct your contributions to your IRA from your taxes. You can also work with a tax advisor to develop the best strategy to reduce your tax obligations and maximize your profits from your life settlement.

Suppose you’re using a savings goal calculator to set saving targets for your retirement or for significant purchases, such as buying a new home or a business. In that case, you can determine how much money you need to meet your targets and use the funds from your viatical or life settlement to achieve those goals.

Life and viatical settlements have many similarities, but there are some key distinctions. You must qualify for a viatical settlement, while any life insurance policyholder with a valid insurance policy can pursue a life settlement. Viatical settlements pay more than life settlements, but both settlements pay more than the face value of a life insurance policy.