The word viatical is derived from the word ‘viaticum’ which a Latin word meaning provisions for a journey. In a broader perspective, a viatical settlement scheme is an act by an individual who is terminally ill of cashing in a life insurance policy to compensate for the obligatory associated illness, final wishes and medical expenses (Kagan, 2018). The terminally ill individual contacts an agent dealing with viatical settlement scheme, which then bids terminal illness’ life insurance policy on the individual with the illness. The bid is packaged to include medical prognosis of the individual with terminal illness as well as life insurance policy terms. The company which wins the bid accepts to offset fifty to eighty percent of the policy’s face amount. This amount varies with respect to the life expectancy as well as the degree of the terminally ill person’s condition. (Kohtz, 2000) Other than the face amount, the company is also expected to pay further premiums and in turn, sell life insurance policy of the terminally ill person to an investor. The investor assumes payment of the policy premiums since he/she is the new policyholder hence the policy beneficiary.
The investor’s returns are dependent on the life expectancy of the seller as well as the actual date the seller dies. For this reason, the investor may suffer loss or benefit from the scheme (“SEC.gov | Viatical Settlements,” 2004). Higher return arises when the seller dies before the projected life expectancy. In case the seller lives for a longer time than expected, the investor reaps lower, and in some cases, the investor can even lose his/her part of the principal investment. This is particularly when the seller does not die in the projected time and the period he/she lives is long enough to make the investor contribute more premiums for the policy.
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References
Kagan, J. (2018). Viatical Settlement. Retrieved from https://www.investopedia.com/terms/v/viaticalsettlement.asp
Kohtz, D. (2000). Viatical Fraud. Retrieved from https://www.quackwatch.org/02ConsumerProtection/viaticalfraud.html
SEC.gov | Viatical Settlements. (2004). Retrieved from https://www.sec.gov/fast- answers/answersviaticalsettlehtm.html
