The following are different types of life insurance policies and their characteristics. Keep in mind that the intent of life insurance is to provide for the life of your heirs and/or beneficiaries for such things as payment of debts and to provide family income. In addition, the policy can provide supplemental income for retirement.
TRADITIONAL WHOLE LIFE
EXCESS INTEREST WHOLE LIFE
ACCELERATED DEATH BENEFITS
Some terminally ill patients may hold life insurance policies with companies that do not offer accelerated death benefits. A viatical settlement can provide cash benefits prior to death.
A viatical settlement is a contract in which the terminally ill owner of a life insurance policy sells the death benefit of their policy to a third party in return for immediate cash payment.
The investor or investors who purchase that right become the beneficiary in exchange for a negotiated amount, which is lower than the face value or death benefit of the policy. In addition, the investors take over the premium payments. Investors in viatical contracts recoup their investment when the full death benefits are paid upon the death of the original policy owner.
A viatical contract requires close scrutiny by the original policy owner since these agreements are complicated financial and legal transactions. If you are considering such a contract, you may want to consult with your attorney, physician, life insurance agent or company, and accountant or financial planner. Proceeds from the settlement may create tax liability and affect Medicaid eligibility.
Life insurance policies with accumulated cash values frequently offer the policyholder the option of using the policy’s cash value or dividends to cover premium payments at a future date. Although the premiums seem to disappear, payments are still being made from the policy’s cash values.
If you elect this option, you should carefully monitor your policy’s cash value. Changes in interest rates, cost of insurance, policy expenses and loans can quickly eliminate your policy’s ability to pay for itself. Such changes could force you to resume premium payments to keep your policy.
This article is intended to be helpful and informative. But even common legal matters can become complex and stressful. A qualified insurance lawyer can address your particular legal needs, explain the law, and represent you in court. Take the first step now and contact an attorney in your area from our directory to discuss your specific legal situation.