Life Settlements vs. Viatical Settlements: Discover the Difference in This Guide

When it comes to life insurance, most people see it as a financial safety net for loved ones after they pass away. However, certain policyholders may reach a point where they no longer need or want their coverage or they may need access to the policy’s value while they are still alive. Two potential options in such situations are life settlements and viatical settlements.

While these terms are often used interchangeably, they are not the same thing. Both involve selling a life insurance policy to a third party for a cash payout, but the conditions, qualifying factors, and financial implications differ significantly.

In this guide, we’ll break down what life settlements and viatical settlements are, how they work, the eligibility requirements, and the key differences to help you make an informed decision if you’re considering one of these options.

Understanding the Basics

What Is a Life Settlement?

A Life Settlement is a financial transaction in which the owner of a life insurance policy sells it to an investor or a company in exchange for a lump sum payment. The buyer takes over paying the premiums and becomes the new beneficiary.

Key points about life settlements:

• Typically, available to seniors aged 65 or older
• The insured person is usually healthy or has minor health issues
• The payout is more than the cash surrender value but less than the death benefit
• The buyer profits when the insured passes away, as they collect the death benefit

Life settlements are often considered by individuals who:

• No longer need their life insurance coverage
• Can no longer afford the premiums
• Want to supplement retirement income
• Have experienced a change in financial goals

What Is a Viatical Settlement?

A Viatical Settlement is similar to a life settlement but is designed for individuals diagnosed with a terminal or chronic illness. The name comes from the Latin word “viaticum,” meaning provisions for a journey in this case, financial resources for the policyholder’s remaining life.

Key points about viatical settlements:

• The insured typically has a life expectancy of 24 months or less
• Often available to individuals of any age, not just seniors
• Payouts are generally higher than life settlements because the buyer expects a shorter waiting period before receiving the death benefit
• Funds may be used for medical bills, caregiving costs, or personal needs

Viatical settlements became more widely known during the HIV/AIDS crisis of the 1980s and 1990s, when many patients sold their policies to help cover expenses.

How the Life Settlement and Viatical Settlement Process Works

Whether you choose a Life Settlement or a Viatical Settlement, the general process follows similar steps:

1. Initial Assessment – A settlement provider or broker evaluates your policy and health status.
2. Valuation – Factors such as the death benefit amount, your age, health, and premium costs are analyzed.
3. Offer – You receive a cash offer based on the policy’s market value.
4. Sale Agreement – If you accept, ownership of the policy is transferred to the buyer.
5. Payout – You receive your lump sum payment, and the buyer takes over premium payments.

Important: This is a permanent decision. Once you sell your policy, you and your beneficiaries no longer have any rights to it.

Key Differences Between Life Settlements and Viatical Settlements

Factors That Affect the Value of Your Policy

Several factors influence how much you can receive from either a life settlement or a viatical settlement:

• Age of the insured – Older individuals usually receive higher offers.
• Health status – In viatical settlements, shorter life expectancy typically leads to a higher payout.
• Type of policy – Whole life, universal life, and convertible term policies are more attractive to buyers.
• Death benefit amount – Higher death benefits usually yield higher offers.
• Premium costs – Lower ongoing premiums make a policy more appealing.
• Market conditions – Interest rates, investment demand, and insurer ratings can influence pricing.

Pros and Cons of Selling Your Life Insurance Policy

Pros

• Immediate cash for medical bills, living expenses, or retirement needs
• Higher payout than surrendering the policy to the insurance company
• Relief from premium payment obligations
• Freedom to use the funds however you choose

Cons

• Loss of death benefit for beneficiaries
• Possible tax implications
• Limited options if you later decide you want life insurance again
• The sale may affect eligibility for certain government benefits

Alternatives to Selling Your Life Insurance Policy

Before deciding to sell your policy, it’s worth exploring alternatives:

1. Cash Surrender – End the policy and receive its cash surrender value from your insurer.
2. Policy Loan – Borrow against the policy’s cash value without selling it.
3. Accelerated Death Benefit Rider – Some policies allow you to access part of the death benefit if you are terminally ill.
4. Reducing Coverage – Lower the death benefit to reduce premium costs.
5. Conversion Options – Convert a term policy to permanent coverage to preserve value.

Choosing Between a Life Settlement and a Viatical Settlement

The right choice depends on your health, financial needs, and long-term plans:

• If you are healthy or have a normal life expectancy and no longer need the policy → Life Settlement may be the better fit.
• If you have a terminal illness and need significant funds quickly → Viatical Settlement may be more suitable.

Common Misconceptions

• “Only whole life policies qualify.” – Term policies that are convertible can also be eligible.
• “You must be elderly.” – Viatical settlements can be available to younger policyholders with qualifying health conditions.
• “It’s the same as borrowing from your policy.” – Selling your policy means you permanently give up ownership and the death benefit.
• “It’s quick money with no consequences.” – There can be tax and eligibility impact that need careful consideration.

Important Considerations Before Selling

• Review your current and future insurance needs.
• Understand the financial impact on beneficiaries.
• Seek independent financial guidance to evaluate tax implications.
• Compare multiple offers to get the best deal.
• Ensure the settlement provider is licensed in your state.

Final Thoughts

Life settlements and viatical settlements can serve as valuable financial tools for policyholders who no longer need, want, or can afford their life insurance policies. Instead of letting a policy lapse or surrendering it for minimal cash value, these options create an opportunity to unlock far greater financial relief or flexibility. Whether the goal is to reduce the burden of rising premiums, fund long-term care, or simply access cash for other needs, both life and viatical settlements can provide meaningful solutions.

That said, these are important financial decisions that should be approached with care. Understanding the terms, potential tax implications, and long-term impact is critical. For some, a life settlement may be the right choice to supplement retirement income or reinvest into other financial strategies. For others, particularly those facing serious health challenges, a viatical settlement may offer immediate access to funds that improve quality of life during a difficult time.

By educating yourself on the differences between these two options and working with a trusted, licensed Life Settlement Broker, you can ensure you’re maximizing the value of your policy while choosing the path that best aligns with your unique needs and financial goals.

Why Choose Summit Life Settlements?

Selling a life insurance policy is a major financial decision — and choosing the right partner makes all the difference. At Summit Life Settlements, we’re dedicated to helping clients understand the Life Settlement Market in order to unlock the highest possible value from their policies with confidence, transparency, and ease.

Here’s what sets us apart:

1. Maximum Value Through Competition
We don’t just bring one offer — we bring multiple licensed buyers to the table and leverage competition to drive your payout higher. Many of our clients receive offers that are significantly above what a single buyer might propose.

2. 100% Seller Representation
Unlike direct buyers, we work exclusively for you, the policyholder. Our job is to protect your interests, negotiate aggressively on your behalf, and ensure you don’t leave money on the table.

3. Transparent, No-Cost Process
There are no upfront fees. We’re only compensated when your policy successfully sells, meaning our incentives are fully aligned with yours.

4. Expertise and Guidance
The settlement market can feel complex. We simplify it. From policy review to final closing, our team guides you step by step — making sure you fully understand your options.

5. Proven Marketplace Network
Summit Life Settlements connects you with top-tier institutional buyers, life settlement funds, and private investors across the country. This wide reach ensures we find the strongest possible offer for your policy.

6. Client-First Approach
For us, it’s not just about selling a policy — it’s about giving clients options and financial freedom. Whether that means funding retirement, covering long-term care, or simply reducing financial stress, we’re here to help.

👉 At Summit, you’re not just selling a policy — you’re unlocking financial flexibility and peace of mind. If you’re considering a life or viatical settlement, let us help you maximize your return.

FAQs: Life Settlements vs. Viatical Settlements

1. What is the difference between a life settlement and a viatical settlement?

• A life settlement is the sale of a life insurance policy by a senior (usually 65+) who no longer needs or can afford it.

• A viatical settlement is the sale of a life insurance policy by someone diagnosed with a serious or terminal illness.

2. Why do people choose a settlement instead of lapsing or surrendering their policy?
Because settlement payouts are often 3–5 times higher than the surrender value offered by the insurance carrier. It’s a way to get real cash for an asset that might otherwise be lost.

3. Who qualifies for a life settlement?

• Policyholders typically 65+

• Face value of $100,000+

• Declining health or high premiums can increase value

• Universal life, whole life, and convertible term policies are most commonly accepted

4. Who qualifies for a viatical settlement?

• Anyone with a terminal illness (life expectancy of 24 months or less, in most states)

• Age is not the primary factor

• Policy must usually have at least $50,000 in face value

5. Are the payouts taxable?

• Life settlement proceeds: May be taxable (treated as capital gains or ordinary income depending on cost basis).

• Viatical settlement proceeds: Usually tax-free, as they are considered similar to accelerated death benefits.

6. How much can I expect to receive from a settlement?

• Offers typically range between 10%–60% of the policy’s face value, depending on age, health, policy type, and premium costs.

7. How long does the process take?
The process can take 6–12 weeks, depending on how quickly medical and insurance records are obtained. Working with a broker can help speed it up.

8. Who buys these policies?

• Institutional investors (pension funds, hedge funds, investment banks)

• Life settlement companies (who may hold or resell policies)

• Private investors or funds (less common, but active in the space)

9. Is the process confidential?
Yes. Your medical and financial information is protected under strict privacy laws. Only licensed buyers and brokers involved in the transaction see your records.

10. What types of policies are eligible?

• Universal Life

• Whole Life

• Convertible Term Life

• Some Group Life policies (if portable)

11. Do I still have to pay premiums after selling my policy?
No. Once you sell your policy, the buyer takes over premium payments. You’re fully released from that obligation.

12. Will my beneficiaries lose out if I sell?
Yes. If you sell your policy, your beneficiaries will not receive the death benefit. However, the trade-off is immediate cash for you to use while you’re alive.

13. Is working with a broker better than going direct to a settlement company?
Yes. A broker represents you, shops your policy to multiple licensed buyers, and negotiates higher offers. Going direct to one buyer often means leaving money on the table.

14. What can the money be used for?

• Retirement income

• Long-term care or medical expenses

• Paying off debt

• Reinvesting into higher-yield opportunities

• Family support or travel

15. Are there risks involved?
The biggest risk is working with unlicensed or unregulated buyers. That’s why it’s important to use a licensed broker who ensures compliance and transparency.