Can You Cash Out a Life Insurance Policy? #1 Viatical Settlements Guide
Introduction: Rethinking Life Insurance in the Face of Mortality
When people purchase life insurance, the goal is usually to protect loved ones after death. But what if you could access those funds while you’re still alive? If you’re facing a serious or terminal illness, you might wonder: Can I cash out a life insurance policy before death? And more importantly, how?
One powerful — yet often overlooked — method is through viatical settlements. These arrangements provide a way for policyholders to sell their life insurance to a third-party investor in exchange for a lump sum, usually more than the cash surrender value and less than the death benefit.
This blog is your ultimate guide to understanding how viatical settlements work, who qualifies, how much you can expect, and how this option compares to other ways to cash out a life insurance policy before death.
What Does It Really Mean to “Cash Out” a Life Insurance Policy?
To cash out a life insurance policy means you’re converting the value of your policy into immediate, usable funds while you’re still alive. This typically applies to permanent life insurance policies — such as whole life, universal life, or variable life — because they build up cash value over time.
There are several ways to do this:
- Policy Loans: Borrowing against your policy’s cash value.
- Withdrawals: Removing a portion of the accumulated cash.
- Surrendering the Policy: Terminating the policy in exchange for the cash surrender value.
- Accelerated Death Benefits: Receiving part of the death benefit early, usually due to illness.
- Viatical Settlements: Selling your policy to a third-party investor for a lump sum.
Among these, viatical settlements provide one of the highest potential payouts, especially if you’re facing a limited life expectancy.
What Is a Viatical Settlement?
A Viatical Settlement is a legal financial transaction in which a person with a terminal or serious chronic illness sells their life insurance policy to a third-party buyer — typically an individual investor or institutional investor.
In return, the seller receives a lump-sum cash payment. The investor becomes the new owner of the policy, continues to pay the premiums, and collects the death benefit when the original policyholder dies.
The key difference between a viatical settlement and a traditional life settlement is the seller’s health condition. Viatical settlements are reserved for those with a life expectancy of 24 months or less, while life settlements are available to healthy seniors (usually 65+) with unneeded policies.
Who Is Eligible for a Viatical Settlement?
While eligibility requirements vary slightly by state and provider, most viatical settlement buyers look for the following criteria:
- Diagnosis: You must be diagnosed with a terminal illness or severe chronic condition (e.g., late-stage cancer, ALS, congestive heart failure).
- Life Expectancy: Typically 6 to 24 months.
- Policy Type: Must be a permanent life insurance policy such as whole life, universal life, or convertible term life.
- Policy Value: Most providers require a minimum death benefit of $100,000.
- Policy Age: The policy should be at least 2 years old (some states have a longer contestability period).
How Much Money Can You Receive?
This is the million-dollar question — literally, in some cases.
The amount you can receive from a viatical settlement depends on several factors:
- Face Value of the Policy: Larger policies usually yield higher settlements.
- Health Status/Life Expectancy: The shorter your life expectancy, the higher the payout (from an investor’s perspective).
- Premium Costs: If premiums are low, your policy is more attractive to buyers.
- Policy Type: Whole and universal life policies typically bring higher value.
On Average:
- Expect to receive 50% to 80% of the policy’s death benefit.
- A $500,000 policy might bring a viatical settlement of $250,000 to $400,000.
- This far exceeds a typical Cash Surrender Value, which might only be $25,000 to $50,000 for the same policy.
Viatical Settlements vs. Cash Surrender Value
Let’s compare the two primary options for accessing your life insurance funds before death.
Viatical Settlement
- Payout: High (50–80% of death benefit)
- Process: Requires third-party buyer, underwriting, legal contract
- Timeline: 2–6 weeks
- Policy Ownership: Transferred to investor
- Premiums: No longer your responsibility
- Taxation: Often tax-free (if terminally ill and properly structured)
- Heirs: Receive nothing
Cash Surrender Value
- Payout: Low to moderate (based on cash accumulation)
- Process: Simple and fast with your insurer
- Timeline: Immediate to 2 weeks
- Policy Ownership: Policy ends
- Premiums: Stop once policy is surrendered
- Taxation: Taxable above your cost basis
- Heirs: Receive nothing
In almost every scenario involving terminal illness, viatical settlements outperform cash surrender in terms of value.
How the Viatical Settlement Process Works
Step-by-Step Breakdown:
- Initial Contact: Reach out to a viatical settlement provider or broker.
- Policy Evaluation: You’ll submit policy documents and medical records.
- Health Underwriting: Your condition and life expectancy are reviewed.
- Receive Offers: The provider may present one or more offers.
- Accept & Transfer Ownership: You sign a contract transferring ownership to the investor.
- Receive Payment: Once all paperwork clears, you get your lump-sum payment.
The entire process typically takes 2 to 6 weeks depending on the responsiveness of your healthcare providers and the complexity of the policy.
Are Viatical Settlements Legal and Safe?
Yes. Viatical Settlement are legal in all 50 U.S. states, although some states regulate the industry more closely than others. To ensure safety:
- Work with licensed providers and brokers
- Review disclosure forms
- Understand all fees and commissions
- Consult with a financial advisor and attorney
Regulatory bodies like the National Association of Insurance Commissioners (NAIC) have established guidelines to protect consumers in viatical transactions.
The Emotional and Ethical Side of Viatical Settlements
Deciding to sell your life insurance is deeply personal. It’s not just about the numbers — it’s about peace of mind.
Emotional Benefits:
- Relieve financial burdens
- See your loved ones benefit from your gift while you’re alive
- Control how your money is spent
Ethical Concerns:
- Some critics argue investors “bet” on someone’s death.
- However, for many, viatical settlements are a lifeline in a time of crisis.
Working with transparent, ethical providers ensures dignity and respect throughout the process.
Alternatives to Viatical Settlements
If a viatical settlement isn’t the right fit, there are still other ways to access your policy’s value:
- Accelerated Death Benefit Riders: Many policies include these for free or a small fee.
- Policy Loans: You can borrow against your cash value with no credit check.
- Partial Withdrawals: Take out a portion without surrendering the entire policy.
- Life Settlements: If you’re not terminally ill, this is a solid alternative for seniors 65+.
- Convert to a Reduced Paid-Up Policy: Stops premiums but preserves a portion of the death benefit.
Each option has pros and cons. Always compare before committing.
Common Myths About Viatical Settlements
Myth 1: “Only rich people or large policies qualify.”
Truth: Policies as low as $100,000 can qualify. It’s more about your health and the policy type.
Myth 2: “It’s not worth the effort.”
Truth: You could gain hundreds of thousands more than surrendering your policy.
Myth 3: “I’ll owe taxes on the entire payout.”
Truth: If you meet IRS criteria for terminal illness, viatical settlement proceeds are often tax-free.
Myth 4: “I’ll be scammed.”
Truth: The industry is regulated. Just make sure you work with licensed and vetted professionals.
Real Case Study: Turning a Policy Into a Legacy
Margaret, age 70, diagnosed with stage 4 cancer:
- $400,000 universal life policy
- Cash surrender value: $32,000
- Viatical settlement offer: $280,000
Margaret used the funds to pay off her home, fund a college trust for her grandkids, and take a final family vacation. Her family received her legacy — while she was still there to enjoy it with them.
Conclusion: Choosing Financial Freedom When It Matters Most
Yes — you absolutely can cash out a life insurance policy before death, and for those facing a terminal illness, viatical settlements are often the most powerful and dignified way to do it.
You’re not just selling a piece of paper. You’re reclaiming control over your life, finances, and legacy.
Whether you use the funds for medical care, family support, or fulfilling your final wishes, the choice is deeply personal — and profoundly impactful.
Final Tip:
Before making any decisions, always speak with:
- A licensed Viatical Settlement Broker
- A tax professional
- A financial advisor or estate planner
They can help you evaluate your options and protect your interests every step of the way.
How Summit Life Settlements Can Help
Navigating a viatical settlement can feel overwhelming—especially during a time of serious illness. That’s where Summit Life Settlements comes in. We’re here to help you understand the Life Settlement Market as your trusted advocate, ensuring you receive the highest possible value for your life insurance policy while making the process clear, respectful, and efficient.
As a premier life and viatical settlement brokerage, Summit works with a large network of licensed institutional buyers through our proprietary Summit Life Marketplace. This competitive bidding platform helps drive up offers for your policy—resulting in payouts far higher than what you’d receive from going directly to a single provider or surrendering the policy to the insurance company.
We handle all the heavy lifting—from reviewing your policy and collecting your medical records to ordering life expectancy reports and presenting your case to multiple qualified buyers. Our role is to protect your interests, not the investors’, so you can trust that we’re focused on getting you the maximum value with complete transparency.
Whether you’re looking to cover medical costs, pay off debts, or simply gain peace of mind, Summit Life Settlements is here to guide you every step of the way with care, integrity, and experience.
Your policy could be worth more than you think—Contact Us today for a free, no-obligation evaluation.
Frequently Asked Questions (FAQs) — Viatical Settlements
1. Can I cash out a life insurance policy before death if I’m healthy?
Yes, but not through a viatical settlement. If you’re healthy or not considered terminally ill, your options include a life settlement, cash surrender, policy loans, or withdrawals (if allowed by your insurer). A viatical settlement, however, is specifically designed for individuals who have been diagnosed with a terminal illness and generally have a life expectancy of 24 months or less.
2. What if I have a term life policy?
While term life insurance does not build cash value and typically cannot be sold directly, it may still be eligible for a viatical settlement if it is convertible to a permanent policy, such as whole life or universal life. If your policy is convertible and you meet the health criteria, it may qualify. Converting before the term expiration is crucial, so timing matters.
3. Will my family still receive anything after I sell my policy?
No. Once you sell your policy in a viatical settlement, ownership and beneficiary rights transfer to the buyer (usually an institutional investor). They become responsible for paying future premiums and collect the full death benefit when you pass away. However, some sellers use part of the payout to support loved ones during their lifetime.
4. How does a viatical settlement affect Medicaid or Supplemental Security Income (SSI)?
Receiving a large lump-sum payment from a viatical settlement may increase your countable assets or income, potentially making you ineligible for needs-based government programs like Medicaid or SSI. Before proceeding, you should consult with an elder law attorney, Medicaid planning specialist, or benefits advisor to understand how it may impact your current or future eligibility.
5. Are viatical settlements taxable?
In many cases, no—if the sale qualifies under Section 101(g) of the Internal Revenue Code, and is made to a licensed viatical settlement provider, the proceeds are tax-free at the federal level. This applies if you are certified as terminally ill by a physician (typically with a life expectancy of 24 months or less). However, tax laws vary by state and situation, so it’s wise to consult with a tax professional.
6. Who qualifies for a viatical settlement?
You typically qualify if you have:
A life expectancy of two years or less
A life insurance policy (whole, universal, or convertible term)
A policy with a death benefit of at least $100,000
Policy ownership for at least 2 years (varies by state)
Eligibility may vary by state and provider, so it’s important to consult a licensed broker or settlement provider to review your case.
7. How long does the viatical settlement process take?
Most viatical settlements take 2 to 6 weeks, depending on how quickly your medical records and policy details are collected and reviewed. A broker can often help expedite this process by coordinating with your insurance company and healthcare providers.
8. Why work with a viatical settlement broker?
A licensed broker advocates for you by presenting your case to multiple buyers, helping you secure the highest offer possible. They also help manage paperwork, protect your privacy, and ensure compliance with state and federal regulations. For example, Summit Life Settlements offers a streamlined marketplace and expert guidance tailored to those navigating the viatical process.
9. What types of life insurance policies qualify for a viatical settlement?
Most permanent life insurance policies (such as whole life, universal life, and variable universal life) qualify, provided they have sufficient face value and are past the contestability period (usually 2 years). Convertible term life policies may also qualify if they can be converted into permanent coverage before the conversion window closes.
10. What documentation is needed for a viatical settlement?
You’ll typically need:
A copy of your life insurance policy
Medical records and a physician’s certification of terminal illness
Recent premium statements
Identification documents
Authorization forms (such as a HIPAA release and policy ownership verification)
A broker or provider will walk you through gathering and submitting the necessary documents.
11. Can I still receive offers if my policy has a loan against it or reduced cash value?
Yes, though a loan or reduced value may lower the settlement offer. Investors consider the net death benefit (after loans) and whether the policy is in good standing. If a policy is about to lapse or requires high premiums, this can affect its marketability.
12. Who regulates viatical settlements?
Viatical settlements are regulated at the state level. Most states require viatical providers and brokers to be licensed and follow consumer protection laws, including disclosures, rescission periods, and privacy protections. Always check that you’re working with a licensed and compliant professional, such as those at Summit Life Settlements.
13. How much can I expect to receive in a viatical settlement?
Payouts vary based on factors like:
Your life expectancy
The death benefit and premium requirements
The policy type and age
The number of interested investors
Generally, viatical settlements pay between 50% to 80% of the policy’s face value, but this can be higher or lower based on your case. Summit Life Settlements helps ensure competitive bidding to maximize your payout.
14. Is the process confidential?
Yes. Your medical information, identity, and financial details are protected under HIPAA and state privacy laws. Licensed brokers and providers are required to keep your information strictly confidential, and only share what’s necessary with investors for underwriting.
15. What are the risks or downsides of a viatical settlement?
Your beneficiaries will no longer receive a death benefit
The lump-sum payout may impact Medicaid/SSI eligibility
You may owe taxes if the sale does not meet IRS requirements
If you live longer than expected, the buyer benefits more from the policy
That said, for terminally ill individuals in need of funds now—for medical care, quality of life, or debt relief—a viatical settlement can be a valuable financial option.
16. How do viatical settlements differ from life settlements?
Viatical settlements are for individuals with terminal illnesses, typically with a life expectancy of 24 months or less.
Life settlements are for those who are older (typically 70+) but not necessarily terminally ill.
Viatical settlements often pay a higher percentage of the policy’s face value because the buyer expects to receive the death benefit sooner.
