Viatical Settlements Transactions and Their Effective Use
For any individual looking to make financial adjustments in their estate via viatical settlements, it is important to weigh the options and understand the potential pros and cons of their decisions.
When someone that is terminally ill is looking into viaticating their policy, there are some additional variables to keep in mind that may augment the value they can receive for their policy.
Let’s look at an accelerated death benefit with viatical settlements…
In some situations, an accelerated death benefit rider is available on an existing policy. This can yield the owner a greater share of the face value when paired judiciously with a viatical settlement. As an example, an insured with a policy face value of $500,000 has recently been given a life expectancy of 12 months. In these conditions, it is possible that a viatical settlement provider may offer 70% of the face value. This would net the insured with $350,000. If the existing insurance policy offers a lifetime benefit option of 50% of the face value this would allow the policy holder to realize $250,000 in accelerated death benefit. After exercising the ADB, the insured can then viaticate the remaining $250,000 balance at 70% and yield a net total of $425,000, or 85% of the face value. In this example there was a net gain of $75,000 that resulted from prudent planning.
Beware unrealistic aggressive promises by viatical brokers…
All too often aggressive sales representatives or viatical marketing companies will bait policy owners with high payout rates of up to 85%. The reality is, it’s impossible for a life settlement broker, or provider, to know what payouts an insured should expect without detailed information on current health circumstances and policy information. Projected life expectancy, the nature of the insurance provider, the type of insurance contract, and the details on the policy premiums all can dramatically effect the payout on a viatical, and in some cases can even deem the policy unworthy of sale on the secondary market.
Competent and seasoned viatical brokers are absolutely vital…
Ultimately, when a policy holder is deemed suitable for a viatical or life settlement, this is just the first step. From there, the policy has to be marketed to a fairly tight knit and regulated community of life settlement and viatical providers. New and unproven brokers that have not developed deep ties to these companies will often lack the background to realize the greatest value for the policy in the secondary market. An experienced broker will solicit a variety of bids from multiple providers to “bid-up” the policy value and get the greatest returns for the insured, thereby providing competent service. Brokers that understand this bidding system and have a broad reach to life settlement and viatical providers often also provide the best service and support.
Avoid viatical brokers that demand exclusivity agreements, participate in competition bashing, and sales pressure. It is vital to avoid these tactics since policy valuations can swing by as much as 25%, depending on the competency and ethics of the broker.
Other things to keep in mind when choosing which life settlement or viatical broker to work with…
Are they able to do business in at least two of the highly regulated states? Some states like New York, Washington, and Florida have more stringent regulation and customer protection in force. If the broker you are looking to work with qualifies to provide services in these states it is more likely they have a seasoned team in place.
Get a confidentiality guarantee in writing. It is important that consummate brokers provide stringent confidentiality to every policyholder for their protection and ethics.
What are the costs involved? Be sure to understand the net costs a broker charges. Although there are industry standards for the costs associated with viatical and life settlements, understanding these fees and getting net cost quotes will save any unexpected expenses that diminish the policy valuation.
Feel free to contact Liberty Universal Life Settlements for more information on viatical settlements or life settlement options.
Check in again soon for Part 3 on Viatical Settlements.