Viaticals and Life Insurance Loans

Author: Christina Bach, MBE, MSW, LCSW, OSW-C
Last Reviewed: January 26, 2018

Many people with cancer struggle with making ends meet, especially if they are no longer able to work and have limited income. One option to increase your income is to use an existing life insurance policy. There are two ways of doing this:

Viatical Settlement

A viatical settlement allows a person with a terminal illness to sell their life insurance policy to a company that does this.

  • Typically meant for people who are not expected to live for more than 2 years (24 months).
  • Your medical information is reviewed by an healthcare provider appointed by the company.
  • If approved, you sell your life insurance policy to a viatical settlement company.
  • This company gives you a lump sum of money that can be used however you see fit.
  • The amount you receive will be less than would be paid when you die.
  • Your beneficiaries will not receive any benefits from the life insurance policy after you die.

It is important to remember; the amount the policy is sold for is LESS than the benefit that would be pay if you die. For example: You have a $250,000 life insurance policy. The viatical company offers to pay you $150,000 for this policy. The company now owns the life insurance policy. The company continues to pay the premiums on the life insurance and becomes the beneficiary of the policy after the your death. This company will collect the $250,000 death benefit.

What is the benefit of a viatical settlement?

  • You can get money fairly quickly to help pay for expenses now.
  • If no one is relying on this money after your death, it may be a good option.

Things to consider

  • If you have a spouse, children, or other dependents, they will not receive any money after your death.
  • You will not be able to leave any money from the life insurance policy to other persons or organizations.

Resources for More Information

Life Insurance Settlement Association (LISA)

http://www.lisa.org

Life Insurance Loans 

Life insurance loans allow you to borrow against the value of your life insurance plan. But there are very specific guidelines as to what type of life insurance policy you can take a loan against, as well as how much you can borrow. You do not need to be terminally ill to take a loan against your life insurance policy. Unlike other loans, you don’t pay a life insurance loan back. Any money you borrow will be taken out of the death benefit paid to your family after you die.

Some companies that specialize in life insurance loans purchase the life insurance policy and pay the premiums for you. This can also save you money. But, remember this company is now managing your life insurance policy and is going to pay back the loan you took from them, plus interest, before they pay any death benefit to your family.

There can be hidden interest charges and other fees that take away from the death benefit. As with viaticals, you must remember that taking a life insurance loan will impact the amount paid to your family after your death.

Key Take Aways

  • Life insurance loans and viaticals can provide cash to cancer patients and improve your quality of life.
  • Think carefully about your own financial needs as well as the long term needs of your family before taking a loan or selling your insurance policy.
  • Your oncology social worker may have information about viaticals and life insurance loans that specifically help cancer patients.
  • A financial advisor can help you take a look at all of your finances before you take a loan or sell your policy, so you can be sure this is the right option for you. 
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