Life Insurance

Accelerated Death Benefits and Viatical Settlements

An accelerated death benefit is when a life insurance company agrees to pay a portion of the death benefit for a policy before death occurs, such as when the policyholder is diagnosed with a life threatening illness or confined in a nursing facility. Upon the death of the insured, the designated beneficiary receives the remainder of the death benefits. The insurer may charge a service fee for the accelerated payment.

A viatical settlement, sometimes called a "life settlement" or "senior settlement", provides cash benefits before death when an individual sells his or her life insurance policy. Viatical settlements may involve healthy insureds, impaired insureds or insureds with a terminal illness. By entering into a viatical settlement contract, the owner of a life insurance policy sells the death benefit to a viatical settlement provider in return for lump sum payment. The settlement amount will be substantially lower than the policy's death benefit, but typically much higher than the policy's cash value. Payments are lower for healthy insureds, since they aren't expected to die soon and the eventual payment of the death benefit to the settlement provider may be many years away.

Policies eligible for a viatical settlement must be permanent life insurance policies or otherwise contain a policy provision enabling the coverage to be converted to permanent.

Sometimes owners of life insurance hear about the life settlement opportunity and express their surprise that it sounds too good to be true! The reality is that the life settlement provider without a doubt will keep the life insurance policy in force until the insured dies, thereby ultimately receiving the policy's death benefit. When insureds don't sell their policies under a viatical settlement, some of them eventually drop coverage or surrender for the cash value. These early surrenders represent profit to the insurance company, and when there is no early termination such as with life settlements the "lapse-based" profits to the insurance company are transferred to the other parties. So in fact, the insurance carrier providing their protection may not think it's a good thing!

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• Accelerated Death Benefits and Viatical Settlements
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