What is a Viator?
A viator is someone who has been diagnosed with a terminal illness or is life threatening and decides to sell their life insurance policy. In doing so, viators receive a portion of the death benefits while they are alive.
Often times, viators are motivated by the desire to fund expensive or experimental therapies that could prolong their lives. If these therapies are not included in their insurance coverage, they may have to sell their policy in order to pay for the treatments out of pocket.
Key points to remember
- A viator is a holder of a life insurance policy who decides to receive a portion of their death benefit during their lifetime.
- In doing so, they must rely on a third party willing to purchase their policy.
- The counterparty is then responsible for paying the monthly premiums associated with the policy. In return, they receive the police death benefit once the viator dies.
In some cases, a life insurance policyholder may not be satisfied with the extent of coverage they receive from their insurer. For example, someone with a costly illness may feel their provider is only covering basic treatment options and not taking advantage of newer or more experimental treatments that might reduce their symptoms or even extend their length of life. life. In this situation, the policyholder may wish to pay for his treatment, abandoning his life insurance contract in favor of a capital that he can devote to his own medical expenses.
To achieve this, viators must find a counterparty – known as a Viatic Settlement Provider (VSP) – who is willing to purchase their life insurance policy. In order to generate a profit, the VSP purchases the life insurance policy at a reduced price, paying the viator less than its face value. The VSP is then responsible for paying the premiums associated with the life insurance policy for the life of the viator. On the death of the viator, the VSP then receives the entire death benefit of the insurance policy.
Viatic settlements are not without risk. After all, a viator may go into remission or benefit from an experimental procedure that prolongs their life or cures them completely. In this situation, the VSP may be responsible for many more years of premium payments than expected, reducing its eventual profit on the trade and potentially leaving it with an overall loss. For this reason, some VSPs will purchase policies from multiple viators at once so that the policies are paid at different times, thus offsetting their risks.
Real world example of a Viator
Ted Smith recently learned that his cancer prognosis had worsened and he only had six months to live. When Ted’s children were younger and still living at home, he took out a life insurance policy so his family would be taken care of if anything should happen to him. Over the years his business and investments have been doing well and he has been able to save a substantial amount of money. For this reason, he is now financially secure and his family will not need to depend on life insurance to be well cared for after his death.
With that in mind, Ted decides to try an experimental procedure that he believes has been very successful in curing cancers like the one he was diagnosed with. After raising this issue with this insurer, they are told that they are unwilling to cover this costly new procedure. For this reason, Ted decides to sell his life insurance policy and become a viator.
Ted looks for a viatical settlement provider and together they negotiate a settlement on the policy. As a policyholder, Ted’s wife is said to have received a payment of $ 500,000 upon her death. Now Ted sells the policy to the VSP for $ 250,000. Ted will receive approximately 50 percent of what his initial payment would have been and PSV will make a profit of $ 250,000, less the monthly bonuses that are accrued until the time of Ted’s death.
Fortunately, the treatment Ted got is working as expected and his cancer goes into remission. The VSP is now responsible for making the monthly premium payments on the policy for the rest of Ted’s life, which could take many years from now, reducing the VSP’s estimated profit from the transaction.