Falling seriously ill comes with all kinds of physical and emotional stresses. Unfortunately, it also often comes with a different kind of stress: financial stress. In a country where healthcare costs are high and, in many cases, paid for by the patient, becoming ill can be extremely financially disruptive. When you’re sick, bills and debt are the last thing that you need.
What can you do when you’re faced with steep healthcare costs and limited economic resources? That’s a question that seriously ill and elderly people often face, and the answers aren’t always easy — while every retirement budget should account for potential healthcare expenses, some costs are high enough to destroy even the more carefully crafted retirement plans.
But there are options. Depending on your situation, you could get a viatical settlement. Is it the right choice for you? Let’s take a look at the pros and cons.
A viatical settlement is an agreement under which you sell your life insurance policy — and its eventual cash payout — to another party. In exchange, you get cash here and now.
The point of a viatical settlement is obvious: it’s to get cash right away! And viatical settlements do that job very well. They convert an asset — your life insurance policy — into cash that you can use to immediately cover medical bills and other expenses.
The great thing about a viatical settlement is that it converts an illiquid asset into a very liquid one. Your life insurance policy is structured in such a way that prevents you from ever living to see the money your beneficiaries will get, but a viatical settlement can swap that future payment for cash. That’s a big deal for many seniors, because so many people reach old age with big chunks of their net worth tied up in assets (like their homes and insurance policies) rather than being free in cash that can be used to cover expenses.
The big advantage of cash is, of course, that it’s very liquid and can be used to do anything from buying groceries to pay down medical debt. And being able to do all of that is crucial, of course. You can’t last long without being able to afford groceries, and going deeper and deeper into debt will cost you dearly. What’s the point of a cash insurance payout to your beneficiaries if you are leaving them no wealth, and only huge amounts of debt?
For a viatical settlement to make sense, it has to give both parties something. So, naturally, you have to give a little bit up to get all of the pros listed above. In the case of a viatical settlement, that means that what you’re getting in cash will be a bit less than what the eventual insurance policy payout would be.
You will also, of course, not have the life insurance payout coming down the line. That money could help your beneficiaries handle things like funeral expenses (dying is, unfortunately, surprisingly expensive). On the other hand, the debt that you could accrue while you lack the cash to pay down bills could offset this, so it’s important to crunch the numbers.
Making the call
A viatical settlement could be the right decision for you, but whether or not it’s the right move will depend on a variety of factors, including your age, health, and financial situation. You should do the math and work with financial advisors to determine whether a viatical settlement is right for you.
To read more on topics like this, check out the lifestyle category.