For many people the term viatical settlement is strange and unfamiliar. No matter how hard you look, it is rare to find detailed analysis of what viatical settlements are, or how they works. Although these unfamiliar transactions can be of great benefit to not only seniors and charities, but also the terminally ill or those needing long term care, it is nonetheless difficult to know where to turn to for useful information.
With sound educational material on viaticals hard to come by, many seniors and financial planners are looking to become better educated on these unique transactions. It takes a fair amount of patience and research to identify legitimate firms to work with and to understand the benefits and details of how a viatical settlement works.
This article is the first in a series that will consider viatical settlements and their nuances. Those that are considering the use of a viatical settlement should benefit from this analysis and history of the viatical settlement market and its maturation over the past three decades.
The History of Viatical Settlements
The awkward term viatical is derived from the Latin word “viaticum” which is roughly translated as “provisions for a journey.” This term was fitting, as most early viatical settlements were designed to provide liquidity to terminally ill policyholders. In these transactions the viator is the policy owner that liquidates their policy by selling the death benefit to a viatical funding firm, often known as providers.
The idea of selling a life insurance policy and treating it like any other asset with value is not a new concept. Although its origins can be dated back to the early 1900’s it was in the 1980’s that the modern concept began to take shape. With an unprecedented rise in terminally ill AIDS and cancer patients there was an overwhelming demand for alternative forms of liquidity. With relatively short and predictable life expectancy, many where faced with crippling medical expenses in addition to basic living needs. Thus, viatical settlements provided a reservoir of liquidity which these individuals could utilize to help mitigate financial burdens.
In the 1990’s, as the viatical settlement market continued to flourish, insurance companies began to adapt and began to offer accelerated death benefits to those deemed terminally ill. These life insurance riders where often no-cost, although in some instances insurance companies charged an annual fee for the option. Accelerated benefits allowed policy owners to liquidate a percentage of the death benefit, while the remaining percentage passed on to the designated beneficiary.
Around 1996 another surge in the viatical settlement market began to take shape. Countless new companies rushed into the market to tap into the financial and estate planning benefits of these transactions. Many of these companies structured financial instruments around the viatical settlements that acted like mutual funds or limited partnerships. These would pool a large number of policies and spread the risk of unknown life expectancy across a wider field of transactions. Although this was intended to decrease risk, the large number of investors looking to get involved, unseasoned life expectancy projections, and insufficient regulation resulted in some unscrupulous companies. With the regulatory cleanup that followed, the industry was forced to mature and adapt to become what it is today.
As demand for viatical settlements continued to surge, and regulation served to create a safety net, some established brokerages and funding firms became involved in the market. With the continued rise in client safety, regulation, and sound institutional involvement, the industry has evolved. These added checks and balances now allow individuals to approach a viatical settlement option with confidence and piece of mind.
Feel free to contact Liberty Universal Life Settlements for more information on viatical or life settlement options.
Check in again soon for Part 2 on Viatical Settlements.