Viatical life settlements are a newer investment vehicle based upon the life insurance policies of terminally ill patients. The sick person sells their life insurance proceeds to a group of investors at a discounted rate, generally around 50% of the cash benefit. The patient gets the cash they need to handle medical bills or living expenses at the end of their life and the investors get a share of the proceeds paid out upon the patient’s death. A commission must usually be paid to the broker who handles the transaction. Most viatical life settlements offer investors a return of twenty percent or higher, making them more profitable than traditional investments such as stocks and mutual funds.
Viatical life settlements: Risks to avoid
Be very careful when investing in a viatical life settlement as there have been many cases of fraud. There are instances of viatical life settlements being offered when the patient was not actually sick, but simply was looking for some extra money in their golden years. Some life insurance policies allow the person’s heirs to protest any modifications that will reduce their benefits. There is also the chance that the insurance or viatical life settlement company could go bankrupt. Be sure that the original insurance policy was purchased legitimately. A viatical life settlement based on insurance fraud will be voided and could possibly be illegal.
Viatical life settlements: Disadvantages
Obviously, the longer the insured person lives, the investment becomes less profitable. This can make viatical life settlements seem rather morbid as the investors are essentially hoping the patient does not live very long. The monthly premiums must also be kept current or there will be no life insurance proceeds for the investors to share. This may require the investor to spend their own money to keep the policy in force, reducing the rate of return.
Viatical life settlements: Laws governing their use
Despite the risks, many people still view viatical life settlements as a viable investment. For those investors, planning ahead is crucial. The legal environment surrounding viatical life settlements varies by state. The FTC has provided information for people thinking about putting their life insurance proceeds up for sale. If you have been thinking about purchasing a viatical life settlement as an investment or trying to sell your own life insurance proceeds, always contact a financial planner before signing any contracts. The SEC also advises that potential investors contact the insurance commissioner in their state to be sure of the legality of a particular viatical life settlement investment. So far, viatical life settlements have been mostly an American phenomenon. These types of investments are currently prohibited in most Canadian provinces. You can look online or talk to your financial advisor to get the best deals on life insurance. As a buyer you should compare different insurance policies and thereafter decide what’s best suited to you.