- Taxes on a viatical settlement
In most cases, a viatical settlement for the terminally ill is viewed as an advance of the policy death benefit, and proceeds are not taxable. In addition to IRS guidance, it is important that sellers understand their state’s taxation regulation. It is advisable to consult with a professional tax advisor.
- Transaction Costs
It’s always important to be aware of all the possible costs a viatical settlement transaction can represent. Most states require disclosure of all commissions and fees, but it’s important to double check for undisclosed fees before a sale is closed.
If you have outstanding debt, the proceeds from the sale of your policy may be subject to the claims of creditors. Be sure to discuss this with your financial institution to better understand if your payout could be compromised.
- Find out if you qualify:
Based on the information provided, you can have a good idea if a viatical settlement is an option for you. Learn if you qualify now using our viatical settlements calculator.
- Make an informed decision:
Do thorough research on all the possibilities around selling your life insurance policy. Discuss any questions you may have with one of our friendly Policy Guides to help you determine next steps.
You will need to submit some information for qualification, basic medical records, and relevant life insurance policy information available. They will be reviewed and verified.
- Get an offer:
Once all paperwork has been processed, it’s time to review the offer you’ll get for your policy. Now it’s just a matter of accepting this offer, signing the respective documents, and submitting the final paperwork agreeing on the terms.
Once the contracting documents are received and diligence complete, it will take a few days for the life insurance company to process the request for change of ownership and beneficiary. Once confirmed, the escrow agent will wire sale proceeds.
In most cases, the proceeds of a viatical settlement are not subject to federal income tax. However, state laws vary, so it’s important to make sure all research is done and all questions are asked before a final decision is made.
A viatical settlement should be tax-free when it meets these requirements: “Policyholders are terminally ill with a life expectancy of less than two years or are diagnosed with a chronic condition that prevents them from performing two activities of daily living.”¹
The best viatical settlement companies are those committed to provide a fast, transparent process.
At Apex Settlement Group we are inspired to go the extra mile to ensure our clients understand all the possible variables around viatical settlements. Our process is direct, without a middleman, and ensures that you have all the information you need before making any decisions.
We believe that our effort should be focused on offering solutions to help you and your loved ones. This is why we work with you hand in hand to provide economic relief during difficult times.
The most important factor when selling your life insurance will always be knowledge. You need to be informed of everything that goes into a settlement to make the best decision for you.
You need to keep in mind:
- Specific state regulations
- Federal and state income tax laws
- Risk of creditors claiming your proceeds
¹ In 1996, the Health Insurance Portability and Accountability Act (HIPAA) was signed into law, making viatical settlements and accelerated death benefits income tax free for chronically ill and terminally ill insureds.
Source: Planned Giving Design Center