Navigating complex financial solutions during times of serious illness can overwhelm anyone. Two options that can help are accelerated death benefits and viatical settlements. Understanding these can empower policyholders to make informed decisions about their financial futures.
Accelerated death benefits (ADB) and viatical settlements allow policyholders to access life insurance funds while they’re alive. However, they serve different purposes and have distinct qualifications and implications.
ADB options let policyholders receive a portion of their death benefits early. This is commonly done by adding a rider to the insurance policy. This rider activates under specific qualifying conditions. These conditions typically involve terminal or chronic illnesses. The policyholder does not need to sell their policy to benefit from this option. Instead, they receive money upfront, reducing the final death benefit payout to beneficiaries.
In contrast, a viatical settlement involves selling the life insurance policy. The policyholder, known as a viator, sells it to a third party at a discounted rate. The third party then becomes responsible for paying future premiums. They receive the death benefit when the insured person passes away.
Policyholders facing serious health issues may get more funds from a viatical settlement compared to ADB. However, selling the policy means original beneficiaries lose their eligibility for benefits. This trade-off must be carefully considered.
ADB riders come with varying terms depending on the insurer. Some policies include these riders at no additional cost, while others require an extra fee. The benefits drawn from an ADB reduce the final payout beneficiaries receive after the policyholder’s death. Policyholders must continue paying premiums even after activating the ADB.
To qualify for an ADB, a policyholder needs to meet specific criteria. These often include a medical diagnosis of a terminal illness with a life expectancy of less than two years. Chronic illnesses that significantly impact daily living functions can also qualify. Since each insurance provider sets its own criteria, policyholders must consult their insurers for precise qualification details.
Viatical settlements, on the other hand, are more straightforward but come with strict qualifications. The policyholder must be diagnosed with a terminal or chronic illness. Medical professionals need to verify the illness, with a life expectancy of 24 months or less. Additionally, there should be a need for substantial assistance due to chronic illness, such as the loss of functional capabilities for at least 90 days.
The value of the policy also matters. It needs to be worth at least $100,000. There are no age restrictions for obtaining a viatical settlement, making it accessible to younger policyholders facing critical health conditions.
When opting for a viatical settlement, policyholders can expect to receive between 50% and 70% of the policy’s face value. It’s crucial to shop around for the best offer, as payouts can vary. Funds from a viatical settlement are typically disbursed within weeks and can be used without restrictions. Certain cases might qualify for tax-free status, depending on the medical condition.
Selling a policy through a viatical settlement transfers ownership and responsibility for premiums to the buyer. This company, often a viatical settlement provider, becomes the sole beneficiary. They assume all premium payments until the viator’s death. The company then receives the full death benefit, not the policyholder’s original beneficiaries.
Tax implications are a significant consideration in both ADB and viatical settlements. In many cases, funds received from these options are not taxable as income. However, exceptions exist. For example, receiving funds in installments rather than a lump sum might involve tax on the interest portion. Other tax situations can arise based on the policyholder’s overall financial situation and the specifics of the life insurance policy.
When comparing ADB and viatical settlements, several factors influence the decision. ADB offers a way to receive a portion of death benefits without selling the policy. Viatical settlements can provide larger immediate funds but require selling the policy and forfeiting future beneficiary claims.
Both options can play a vital role in financial planning for those with severe illnesses. Whether used for senior care, paying medical bills, or other essential expenses, these options offer financial relief during challenging times.
We understand the importance of making informed financial decisions during critical times. A clear understanding of the available options can provide peace of mind and financial support. We are dedicated to offering comprehensive information about life settlements and other financial solutions tailored to individual needs. We aim to guide you through each step, ensuring you make the best choices for your situation.
