- Thinking about money
- Private health plans
- Types of health plans
- Other things to know about health insurance
- How to manage your health insurance
- Getting answers to insurance-related questions
- Keeping records of insurance and medical care costs
- When you have problems paying a medical bill
- Handling a claim denial
- Keeping employer-sponsored health insurance coverage when you leave your job
- COBRA (Consolidated Omnibus Budget and Reconciliation Act of 1986)
- The Health Insurance Portability and Accountability Act of 1996 (HIPAA)
- The Family and Medical Leave Act of 1993
- The Americans With Disabilities Act of 1990
- The Affordable Care Act
- Government-funded health plans
- Who regulates insurance plans?
- Options for the uninsured
- State coverage and health insurance options for the hard-to-insure
- Financial issues: Getting help with living expenses
- Getting money from life insurance policies
- Outside sources of financial help
- Disability benefits
- To learn more
Getting money from life insurance policies
Life-threatening illnesses and problems that need a lot of medical care often lead to a need for immediate cash income. In many states, your life insurance policy may be a source of income through the acceleration of the policy’s death benefit, known as living benefits. You can get these benefits in different ways, such as viaticals or life settlements (sale of the life insurance policy) and loans against the face value of the life insurance policy (from the original insurance company or from a third party). The Life Insurance Settlement Association can give you more information on ways you may be able to use your life insurance policy. Visit them online at www.thevoiceoftheindustry.com, or call 407-894-3797.
Viaticals and life settlements
A viatical is the sale of a life insurance policy for cash when the insured is not expected to live very long. The insured person (called the viator) sells his or her life insurance policy to a third party. As with any sale, both sides must agree on what is being sold and how much it’s being sold for.
For a viatical transaction, the person’s life expectancy may be less than 6 months or as long as several years and must be certified by a doctor. To reduce money worries, the person sells the life insurance policy for a lump-sum cash payment, which in some cases is tax-free. The payment depends on how long the person is expected to live, and is usually between 30% and 80% of policy’s face value. This payment is given only to the person who holds the policy. The company buying the policy must keep paying premiums, and then collects the death benefit after the seller dies.
Life settlements are very much like viaticals, but here the life insurance policies are sold when the insured needs money more than life insurance. There is no requirement for terminal illness.
Reasons for choosing a viatical or life settlement:
- To pay for food, shelter, doctor visits, health insurance premiums, or other pressing needs
- To ease the stress of money worries
- To fulfill a life-long dream
Drawbacks of a viatical:
- Your heirs get no insurance money.
- You may not make the best trade available.
- Decision-making may be difficult.
- Once a policy is sold, the sale is usually not reversible.
Line of credit from a finance company
People with cancer who are not expected to live a long time can transfer their life insurance’s death benefit to a finance company. The company reviews your health status, then makes “cash advances” on the expected benefit. This is actually a loan, and as with all loans, interest rates vary. You may borrow up to 35% to 75% of your insurance’s death benefit depending on your situation. The death benefit is then reduced by the loan amount, the premiums the company pays on the policy, fees, and the interest on the loans you have taken out. Not all life insurance is eligible, and this type of loan is not offered by all companies.
Living benefits and other choices
You might also have other choices. For instance, you may be able to get a personal loan, or, instead of selling your policy outright to a third-party life settlement company or transferring your death benefit, you may be able to get more money from the original insurance company. Many insurance companies make it possible for life insurance policy owners to collect part of their death benefits early – before dying – to cover extraordinary expenses. A life insurance policy usually pays benefits to a beneficiary after a policy owner dies. But in certain cases, those benefits are accelerated and are paid directly to a chronically or terminally ill policy owner before he or she dies. These are called living benefits or accelerated benefits.
In general, living benefits can range from 25% to 95% of the death benefit. The payment depends on your policy’s face value, the terms of your contract, and the state you live in. Ask your insurer to give you a quote before you use your accelerated death benefit option. Living benefits are not intended to replace health insurance or long-term care insurance. But they can give you extra help with needs that result from terminal or catastrophic illness. Contact your insurance agent or life insurance company for details on your policy’s accelerated benefits plan.
For more information regarding living benefits from life insurance, please see the American Council of Life Insurers website www.acli.com or call 202-624-2000.
Another option is to get a loan from a third party. Some companies will lend money to terminally ill people who are expected to live between 6 months and 5 years. The patient’s life insurance policy is used as collateral. The company will lend a portion of the policy’s face value, usually ranging from 35% to 85%, which is paid back from the payout of the policy at the time of the person’s death. Any money left over goes to the original beneficiary. The interest rates on the loans are often high, but there are no restrictions on how the borrowed money may be used.
Signing a contract for a viatical or living benefits: Before you make a final decision, think about the points below. Talk to a lawyer or a financial planner to help you decide what’s best in your case.
- Get a clear picture of what’s involved. Read about viaticals, life settlements, loans, lines of credit, and living benefits. Ask questions.
- Get professional advice about the types of benefits available and the pros and cons of each.
- Decide whether a living benefit, viatical, or life settlement is the best course of action for you.
- Talk to your doctor about how long you can expect to live.
- Find out if Medicaid or other benefits will be affected.
- Shop around. Get several bids. Bids can vary a lot.
- Find out if the company buying your policy is a broker. Some companies use their own money to buy policies, but others are brokers. A broker gets a commission from the company and might not act in your best interest.
- Negotiate; you might get a better deal.
Last Medical Review: 09/10/2012
Last Revised: 10/10/2012