Viatical Settlements
The Henssler Financial Group Position Paper

The Hensler Financial Group Wealth ManagementWhat is a viatical settlement?

A viatical settlement involves the sale of a life insurance policy by an elderly or terminally ill person to a viatical firm, in exchange for a cash settlement of an amount less than the face value of the policy. The viatical firm subsequently sells the interest in the policy to an investor.

How does a viatical settlement work?

Three basic steps occur in a viatical settlement:

  • The elderly or terminally ill person who owns a life insurance policy sells the policy, at a discount to face value, to the viatical firm. For example, Mr. Smith is terminally ill and holds a $100,000 life insurance policy on himself. He sells the policy, for $75,000, to a viatical firm, who then becomes beneficiary of the policy . Mr. Smith now has the $75,000 cash to use for whatever purpose he chooses, and the viatical firm holds a policy that will eventually pay $100,000 when Mr. Smith dies.
  • The viatical firm sells the interest in the life insurance policy to an investor. Using the above example, Mr. Jones purchases the interest in the policy on Mr. Smith's life from the viatical firm for $80,000. He is guaranteed to receive $100,000 at the time of Mr. Smith's death.
  • When the insured dies, the investor receives the proceeds from the life insurance policy. Again using the above example, when Mr. Smith dies, Mr. Jones receives $100,000 from the insurance company.

Why might the insured, the viatical firm, and the investor consider this arrangement?

Insured
The insured receives cash that may be needed for living expenses or medical expenses while still living, instead of at death.

Viatical firm
The viatical firm profits from the difference between the sales price to the investor ($80,000 in the example above) and the purchase price from the insured ($75,000 in the example above).

Investor
The investor eventually receives the full proceeds of the life insurance policy, after paying some discounted amount for the right to receive those proceeds. In the above example, Mr. Jones paid $80,000 for the viatical arrangement, and receives $100,000 when Mr. Smith dies, for a profit of $20,000, or 25%.

Does The Henssler Financial Group recommend viatical settlements?

No. We don't recommend viatical settlements for either the insured or the investor. Why?

Insured
 Better and less expensive alternatives often exist for the insured, including a settlement directly with the insurance company or a loan using the policy as collateral.

Investor
 The viatical investment basically becomes a bond with an uncertain maturity date. Therefore, the annual return is not guaranteed, and will not be known until the insured dies. The investor is also in the uncomfortable position of making a better return if someone dies sooner. Viatical investments should generally be avoided.

All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing.

Henssler is not licensed to offer or sell insurance products and this overview is not to be construed as an offer to purchase any insurance products.
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