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Why are Viaticals a Bad Investment

Why are Viaticals a Bad Investment

If you’re facing a financial crisis because of a medical diagnosis, you may be considering selling a life insurance policy. On the surface, this option may seem like the right path, if you can net enough money to pay your bills and live out the rest of your days without focusing on finances. However, for those with terminal illnesses, selling a life insurance policy through a process known as a viatical settlement can have many unintended side effects — putting your financial health, and that of your family, at risk.

So just why are viaticals a bad investment? Here are three of the primary reasons to steer clear of these settlements and consider instead options like LifeCredit’s Living Benefits Loans, in which you simply borrow against — and not sell — your life insurance policy.

1. Jeopardizing Your Finances

When you enter into a viatical settlement, you’re selling a life insurance policy for less than it’s worth. You’re not only cheating yourself out of that money you deserve but you may also be jeopardizing your current income. Because of the influx of cash, you may be cut off from income-based benefits like Medicaid — again, these are benefits you deserve and have paid into; however, the viatical settlement may mean this income that you likely count on could end. Additionally, you will have to pay taxes on the amount you receive in the viatical settlement, which could significantly reduce the total.

2. A Gamble with Time

Those who are considering selling a life insurance policy may have received a terminal diagnosis and are likely scrambling to get their affairs in order. However, as we have seen countless times, the prognosis that a physician delivers isn’t always exact. Even with a terminal illness, a patient can outlive expectations for months or even years. Yet if you quickly opt for a viatical settlement, thinking your time is limited, you may again end up facing a financial crisis if you use up that money. At the end of your life, you should be focused on being comfortable and enjoying your final days, and not worrying about trying to make ends meet.

3. Think About Your Heirs

Selling a life insurance policy has a finality to it: An investment you made for years and likely even decades will be quickly gone. You may have intended to leave that to your children to help them cover your final expenses or to other family members or friends to assist them with building their own savings. However, a viatical settlement will give you significantly less than your policy’s death benefit would, and you may even use it all, leaving nothing to your heirs.

Why are viaticals a bad investment? Simply, you’re selling yourself short by cashing out on a longtime investment. Instead, borrowing against that investment — and not fully parting with — can help you cover costs while also giving you peace of mind.

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Viatical Settlement vs. Living Benefit Loan

A viatical settlement means selling your policy permanently to a third-party investor. You receive a lump sum (typically 50-80% of the death benefit), but your beneficiaries lose all coverage. The process takes 2-4 months and involves medical underwriting, investor bidding, and legal review.

A Living Benefit Loan is a fundamentally different approach. You borrow against the death benefit, keep your policy, and your beneficiaries still receive the remaining benefit. Funding takes as few as 3 business days with no credit check.

📚 Related In-Depth Guides

Who Qualifies for a Viatical Settlement?

Viatical settlements are typically available to individuals with:

If you qualify for a viatical settlement but want to keep your policy, a Living Benefit Loan may be a better fit. Compare all options side by side →

Tax Implications

Viatical settlement proceeds may be tax-free for terminally ill individuals under IRC §101(g). For chronically ill individuals, the tax treatment varies. Living Benefit Loan proceeds are generally not taxable since they're structured as a loan, not income. Always consult a tax professional for your specific situation.

Frequently Asked Questions

Is a viatical settlement my only option?

No. A Living Benefit Loan lets you access up to 50% of the death benefit while keeping your policy. Compare all options at lifecreditcompany.com/your-options.html.

How long does a viatical settlement take?

Typically 2-4 months. A Living Benefit Loan funds in as few as 3 business days.

Are viatical settlements taxable?

May be tax-free for terminally ill individuals under IRC §101(g). Consult a tax professional.

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