Viatical settlements and life are two distinct financial arrangements involving the sale of life insurance, but according to Abacus Life CEO Jay Jackson, they cater to different circumstances and individuals. Understanding the differences between these two concepts is essential for making informed decisions about your financial future. This article explores the key distinctions between life settlements and viatical settlements.
Differences in Terms of Definition and Purpose
Life Settlements
A life settlement involves the policyholder’s sale of a life insurance policy to a third party, often an investor or a specialized company. The policyholder typically sells the policy because they no longer need the coverage or can no longer afford the premiums. Life settlements are commonly pursued by seniors who have outgrown the need for their life insurance policies.
Viatical Settlements
According to Abacus Life CEO Jay Jackson, viatical settlement is similar to life settlements, but it pertains specifically to individuals with a terminal illness. In a viatical settlement, a policyholder sells their life insurance policy to receive a lump sum payment. The funds from the settlement can be used to cover medical expenses, improve the quality of life, or address financial concerns during the individual’s remaining time.
Differences in Terms of the Health Condition of the Insured
Life Settlements
In a life settlement, the insured individual might be in relatively good health or have moderate health issues. The primary motivation for selling the policy is often financial rather than a result of a terminal illness.
Viatical Settlements
Viatical settlements are meant for individuals diagnosed with terminal illnesses, usually with a life expectancy of two years or less. The sale of the policy provides financial relief and support during the challenging period of dealing with a severe health condition.
Differences in Terms of Investor Interest
Life Settlements
Investors in life settlements are interested in policies held by individuals with a longer life expectancy. This ensures that the investor’s capital remains invested for a more extended period, offering the potential for higher returns upon the insured’s passing.
Viatical Settlements
Investors in viatical settlements know that the insured has a limited life expectancy due to a terminal illness. The investor anticipates a shorter holding period before the policy matures, resulting in quicker returns upon the insured’s death.
Differences in Terms of Financial and Ethical Considerations
Life Settlements
Life settlements are generally pursued for financial reasons, such as supplementing retirement income or addressing changing financial circumstances. While they involve profiting from a policyholder’s passing, the ethical implications might be less pronounced due to the absence of a terminal illness.
Viatical Settlements
Viatical settlements have a more pronounced ethical component due to the involvement of individuals facing terminal illnesses. The sale of a policy provides critical financial assistance during a challenging time, which can ease the burden of medical expenses and improve quality of life.
Summary
According to Abacus Life CEO Jay Jackson, life and viatical settlements offer ways to leverage life insurance policies for financial needs. Life settlements are suited for individuals who no longer require their policies and seek to unlock the value within them. In contrast, viatical settlements are meant to provide financial assistance to those with terminal illnesses, offering support during a challenging period.
