Viatical Settlement

A viatical settlement is the sale of a life insurance policy by a terminally ill policyholder — typically with a life expectancy of two years or less — to a third-party investor for a lump-sum cash payment. The payment is typically higher than the policy's cash surrender value but lower than the death benefit. The investor pays future premiums and receives the death benefit at the insured's death. Federal law generally treats viatical settlements as income-tax-free for terminally ill individuals who meet IRS criteria. Viatical settlements are regulated separately from life settlements, which involve non-terminally ill policyholders, and are subject to specific licensing requirements.