Legal Definitions - viatication

Viatication refers to the process where an individual who is terminally or chronically ill sells their life insurance policy to a third party. In return for assigning the policy's benefits, the policyholder receives an immediate lump-sum cash payment, which is typically less than the policy's full death benefit but more than its cash surrender value. The third party then becomes the new owner and beneficiary of the policy, receiving the full death benefit when the original policyholder passes away.

Here are some examples illustrating viatication:

• Example 1: Funding End-of-Life Care

  Eleanor, diagnosed with a terminal illness, has a life expectancy of less than two years. She has a substantial life insurance policy but finds herself facing significant medical bills and wishes to make her remaining time as comfortable as possible, including fulfilling a lifelong dream of visiting a national park. Her health insurance covers some costs, but not all of her desired comfort care or the travel expenses.

  Eleanor decides to pursue viatication. She sells her life insurance policy to a viatical settlement company for a lump-sum payment. This immediate cash allows her to pay for specialized in-home care not covered by insurance, settle outstanding medical debts, and take her dream trip with her family. Upon Eleanor's passing, the viatical settlement company, now the policy's owner, receives the full death benefit. This scenario demonstrates viatication because a terminally ill policyholder sold her life insurance policy for an immediate cash payment to address her financial needs during her final years.

• Example 2: Managing Long-Term Chronic Illness Expenses

  David suffers from a severe chronic illness that requires continuous, expensive care, including specialized equipment and regular nursing assistance, which is slowly depleting his retirement savings. He has a whole life insurance policy with a significant death benefit, but he needs immediate funds to cover his ongoing care costs and improve his daily living situation without becoming a financial burden on his children.

  David opts for viatication. He sells his life insurance policy to an investor group specializing in such transactions. In exchange, he receives a substantial lump sum of cash. David uses this money to pay for his long-term care expenses, make necessary modifications to his home for accessibility, and ensure he receives the best possible quality of life. When David eventually passes away, the investor group, as the new policy owner, collects the death benefit. This illustrates viatication as a chronically ill policyholder exchanged his life insurance policy for an immediate cash payment to manage his extensive and ongoing healthcare and living expenses.