Suffering from any terminal illness is traumatic enough and facing financial strains can only compound the matters. Viatical Settlements are a way to provide relief to the terminally ill person, in that he can sell his life insurance policy for a lump sum amount of cash. A private company or a broker can purchase the viator's policy for a reduced amount than the actual face value of the policy. The seller gets the lump sum cash payment; the purchaser gets the death benefits on the demise of the seller.
Given the vulnerability of the situation certain provisions have been laid down by the law to ensure that no unscrupulous elements exploit the vulnerable people. Under New York State law, the viatical settlement companies or brokers have to be licensed. A contract is signed between the policy provider and purchaser. The contract is a written document entered between the two parties and it states the terms and conditions under which the life settlement provider will pay compensation to the seller of the policy. It also specifies the sale or transfer of the net death benefit or ownership to the purchaser of the policy.
The written document should state clearly the broker's or the funding company's name and contact address. It is also mandatory to state the alternative benefits that the seller may have to life settlements. These can be in the form of accelerated death benefits that the insurance company may have offered to the original policyholder.
The proceeds from a viatical settlement may or may not be free from tax benefits. Some states require viatical settlement companies to make these disclosures in the contract. Before signing the contract, the policyholder should contact a lawyer to check on the possible probate and estate considerations. The seller should keep in mind that a beneficiary of the viatical settlement will not get any life insurance benefits.