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Wondering if viatical or life settlements beat cash surrender value? Providers like Coventry Direct, Life Settlements, and Viatical Settlements offer more cash through third-party buyers.
Key differences affect your payout. Learn eligibility and comparisons to pick the best option.
Key Takeaways:
- Viatical settlements pay up to 4 times premiums. They target terminally ill policyholders with life expectancy under 24 months.
- Life settlements offer lower payouts. They serve seniors with life expectancy over 24 months.
- Terminally ill people get faster, higher cash from viatical settlements. Healthier seniors use life settlements for liquidity.
What Is a Viatical Settlement?
A viatical settlement gives terminally ill or chronically ill policyowners a tax-free lump sum. This payment beats cash surrender value when they sell their life insurance to a third-party buyer.
IRS rules require terminal illness with life expectancy of 24 months or less. Chronic illness means the insured cannot perform two or more daily activities like bathing or eating.
This option helps cover high medical costs. It provides immediate cash far above policy cash value.
An ALS patient with a $100,000 face value policy might get $65,000. That's 65% through viatical settlement versus just $5,000 cash value.
The process closes in 30-45 days. It suits urgent financial needs.
Providers like Coventry Direct or Harbor Life review medical records. They appraise the policy based on death benefit, premiums, and life expectancy.
The buyer pays future premiums and collects the death benefit later.
- Funds cover treatments, retirement, or family support.
- No tax issues like capital gains on cash value.
- Consult a financial advisor to compare options like accelerated death benefits or 1035 exchanges.
- Real cases show 3-4 times more than cash surrender value.
What Is a Life Settlement?
Life settlements let seniors age 65+ sell unwanted policies. They get lump sums 4-8 times higher than cash surrender value.
The $112 billion industry includes providers like Coventry Direct. The buyer takes over premiums and collects the death benefit later.
Submit policy details to a settlement company. It gets bids from multiple buyers.
Seller receives tax-free lump sum after acceptance. Deduct any loans or tax basis first.
A $100,000 policy might yield $80,000. That's versus $15,000 cash value.
Data shows average 25% of face value. Cash surrender values stay below 10%.
Top providers lead the market.
Coventry Direct manages over $50 million yearly. Harbor Life offers a 98% offer acceptance rate.
American Life Fund bids on policies over $100,000.
Policyholders should talk to a financial advisor. This helps weigh tax implications like capital gains above tax basis or ordinary income over premiums paid.
State rules ensure fair eligibility. They differ from accelerated death benefits, which limit payouts at the insurer's choice.
Key Differences: Viatical vs. Life Settlements
Viatical and life settlements turn life insurance into cash. They differ in who qualifies, taxes, speed, and payouts based on health.
- Viatical settlements help terminally ill or chronically ill policyholders with 24 months life expectancy.
- They offer tax-free cash and close in 45 days.
- Life settlements suit healthier seniors aged 65+.
- Gains above cash surrender value or tax basis count as capital gains or ordinary income.
- Deals take 60-90 days.
Viatical payouts hit 70-90% of face value. Life settlements average 20-30% due to longer expected life.
These differences affect policyholders with money needs. Think medical bills or retirement gaps.
- A 70-year-old with terminal cancer gets a big tax-free viatical payout. It beats the insurer's accelerated death benefit.
- A healthy senior with a $500,000 policy facing lapse can choose life settlement from Coventry Direct or Harbor Life. Taxes cut the net cash.
One of our most insightful guides on selling a life insurance policy demonstrates this principle with real-world results.
Some states require licensed providers.
These differences help policyholders pick the right fit. They show why shorter life expectancy brings bigger payouts.
| Aspect | Viatical Settlement | Life Settlement |
|---|---|---|
| Life Expectancy | 24 months | 2+ years |
| Taxation | Fully tax-free | Taxable gains |
| Closing Time | 45 days | 60-90 days |
| Avg Payout | 70-90% face value | 20-30% face value |
Eligibility Requirements
Viatical settlements need doctor proof of terminal illness (24 months life expectancy) or trouble with 2+ daily activities. Life settlements fit healthy seniors age 65+ with policies worth $100,000+.
Viaticals work for any policy or age. They suit terminally ill or chronically ill people with high medical costs.
Life settlements require 2 years of premiums paid and no major health issues. They help with retirement cash needs or lapsed policies.
- For viatical settlements: Submit terminal diagnosis documentation, complete HIPAA-compliant medical exam, confirm any policy type/age fits.
- For life settlements: Verify age 65+, ensure $100K+ face value, prove 2+ years premiums paid.
State rules vary. California demands licensed providers.
Talk to a financial advisor soon. Ask: "I have a $100,000 policy. Do I qualify for viatical or life settlement? What about tax implications and top providers like American Life Fund?"
This avoids 1035 exchange risks. It fits IRS rules on beneficiary changes.
Life Expectancy Criteria
Life expectancy sets the settlement type. Expectancy of 24 months qualifies for a viatical settlement. It pays 85% or more of the face value. Longer than 2 years means a life settlement. It averages 20-30% of face value.
Providers check health with strict medical reviews. They start with AVB scoring from Milliman Mortality Tables. This predicts survival odds. Next comes an Independent Medical Exam. It often costs $750 and reviews records.
Comorbidities adjust expectancy. For example, cancer adds a 25% discount. This raises viatical settlement offers. The insured's higher risk means bigger payouts.
Picture this: A 65-year-old male has an 18-month expectancy. He gets a viatical settlement at 70% payout. This beats the cash value. It's tax-free for urgent needs.
The same man with 5-year expectancy gets a life settlement at 22%. This payout is taxable. Buyers account for longer premiums. Tables ensure fair policy sale quotes from firms like Harbor Life.
- Expectancy 24 months: Viatical settlements give quick lump sums.
- Longer expectancy: Life settlements offer lower payouts. They beat cash surrender value.
Payout Comparison: Which Pays More?
Viatical settlements pay 65-95% of face value for terminal cases. On a $100K policy, that's $65K-$95K. Life settlements pay 15-35%, or $15K-$35K. Data comes from Coventry Direct's 2023 report.
Viatical targets those with under 24 months to live. Payouts near the death benefit. Life settlements help seniors over 65 or the chronically ill. Buyers plan for longer life and premiums.
Compare to cash surrender value. It returns just 2-10% of face value. Harbor Life cases show viaticals at 10x surrender value. For a deeper comparison of selling a life insurance policy with cash value, life settlements and viaticals typically deliver far superior returns. Use for medical bills or family help.
Viatical settlements for the terminally ill are tax-free. No capital gains or income taxes per IRS rules. Life settlements tax amounts over basis. Many stay tax-free up to death benefit.
- American Life Fund averages 80% of face value for cancer.
- Healthy seniors get 25%.
Compare offers from providers. This helps those with financial needs. Talk to a financial advisor. Check state rules and skip low accelerated death benefits.
| Scenario | Face Value | Viatical Payout | Life Settlement Payout | Surrender Value |
|---|---|---|---|---|
| Cancer (18mo expectancy) | $100K | $82K | $28K | $8K |
| Healthy senior (age 75) | $500K | N/A | $125K | $40K |
| Heart disease (12mo) | $250K | $212K | $62K | $18K |
| Chronically ill (36mo) | $300K | N/A | $105K | $24K |
Harbor Life and Coventry Direct provide these examples. They show ROI. A $100K policy's viatical payout is 10x surrender value ($82K vs $8K). Life settlements give 3.5x.
- Age of insured
- Policy type
- Daily living impairments
These boost offers from settlement companies.
Factors Affecting Payout Amounts
Seven factors shape offers. Life expectancy drives 60% of payout changes. Premium costs cut offers by 15-25% each year.
These apply to viatical and life settlements. They set payouts vs cash surrender or face value. A $100K policy sees big offer swings by health and market.
- Know these factors.
- Weigh vs keeping policy for heirs.
- Consider accelerated death benefits.
Providers like Coventry Direct, Harbor Life, and American Life Fund check key factors when bidding. Shorter life expectancy means higher payouts for buyers.
Policy type and premium costs affect the net amount. Strong insurers, low loans, bidder competition, and good market conditions boost offers. Curious about selling a life insurance policy: what happens and what you get paid? Sellers often get tax-free cash for medical bills or retirement.
- Life expectancy: Shorter estimates boost offers significantly, with 1-year expectancy yielding 80% of face value versus 5-year at 18%. Viatical settlements for the chronically ill or terminally ill command premiums over life settlements.
- Policy type: Universal life averages 35% of face value. Term conversions average 15% due to fixed premiums.
- Premium load: High annual costs like $10,000 reduce offers by 22%, as buyers factor in future payments.
- Insurer rating: A.M. Best A+ rated carriers add 5% to premiums, signaling lower risk.
- Borrowed cash value: Outstanding loans deduct directly from the payout, lowering net lump sum.
- Multiple bidders: Competition from settlement companies drives 10-20% uplifts in final offers.
- Market conditions: With $112 billion in liquidity, strong markets yield better deals for policy sales.
American Life Fund runs auctions for policies. They target those over age 65 or with serious illness.
Multiple bidders compete for the best deal. This often beats cash value and weighs tax rules like capital gains.
Pros and Cons of Each
Viatical settlements give tax-free cash fast for medical costs. They average 8x the surrender value but end the death benefit for heirs.
Life settlements help fund retirement. They may trigger capital gains taxes on gains above the tax basis.
Terminally ill people pick viaticals for urgent needs. Healthy seniors over 65 choose life settlements for income.
| Aspect | Viatical Settlements | Life Settlements |
|---|---|---|
| Viatical Pros | 100% tax-free (IRC 101(g)) | Terminal diagnosis required |
| Fast cash (45 days) | No future coverage | |
| High % of face value | Limited to terminally or chronically ill | |
| Life Pros | No health requirements | Taxable gains above tax basis |
| Retirement income stream | Longer process (90 days) | |
| Competitive bidding | Lower % payout (avg 20-30% face value) |
Terminally ill sellers get up to 80% of the death benefit in viatical deals. This beats the typical 10-20% cash surrender value.
Life settlement sellers skip medical exams. They face capital gains or ordinary income taxes.
1035 Exchange Alternative Comparison
A 1035 exchange lets owners swap policies tax-free. It keeps the death benefit for heirs unlike sales.
No third-party buyer gets involved. Owners avoid losing coverage and capital gains taxes.
Picture a $100,000 policy. Swap it for one with lower premiums to protect family.
A 1035 exchange works best for people without urgent medical bills or retirement gaps. It needs IRS-approved policies and compliance with state rules.
Viatical settlements require proof of terminal illness, such as ALS or Alzheimer's. They also need proof of inability to perform two activities of daily living.
These give fast cash but end your coverage. Life settlements suit seniors more broadly.
They pay out taxes and take longer. Talk to a financial advisor before deciding. This helps when premiums hurt your budget but you lack a terminal illness.
A chronically ill person can get 50-80% of the policy's face value from a viatical settlement. A 1035 exchange gives tax-free value and keeps coverage active.
Life settlement providers bid against each other. Gains above your tax basis face IRS taxes up to 37%.
Exchanges excel in long-term planning. They avoid settlement fees of 20-30% on payouts.
- Choose viatical for quick cash if terminally ill.
- Pick exchange for long-term savings without fees.