Life Settlement vs. Viatical Settlement: Liquidating Your Permanent Life Policy

For policyholders who no longer need or can afford their Permanent Life Insurance, selling the policy is an option. This process involves two distinct types of arrangements: a Life Settlement and a Viatical Settlement. Both involve selling the policy to a third party for a cash sum greater than the policy’s cash surrender value.

Viatical Settlement: Illness-Driven

A Viatical Settlement applies to policyholders who are **terminally or chronically ill** (often with a life expectancy of 24 months or less). Key features:

• **Tax Treatment:** The proceeds received are generally tax-free under U.S. law, similar to an accelerated death benefit.
• **Purpose:** Provides cash for immediate medical and living expenses.

Life Settlement: Age and Necessity-Driven

A Life Settlement applies to policyholders who are typically **age 65 or older** (or sometimes younger with significant health impairments) and simply wish to liquidate an unneeded policy. Key features:

• **Tax Treatment:** The cash proceeds may be partially or fully taxable, depending on the policy’s cost basis.
• **Purpose:** Provides cash for retirement, long-term care, or other needs.

Disclaimer: This content is for informational purposes only and is not financial or legal advice. Selling a policy is irreversible and complex. Consult a specialized broker and tax advisor before proceeding.