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November 08, 2009 at 07:00 PM
The question was: My client has been diagnosed with a terminal illness and so we are now considering what to do with the life policy. What are are options and considerations, including life settlements, to review?
The answer is: In a genuine instance of terminal illness, the question is whether viatication is the most efficient way of making use of the death benefit.
The alternatives, presumably, are allowing the policy to lapse, surrendering it, leaving it in force and raising cash by other means, and, if available, taking advantage of an accelerated death benefit (ADB) provision.
Allowing the policy to lapse is clearly the least desirable option. Under the circumstances, surrendering the policy makes little more sense. What of the other three possibilities? Leaving the policy in force is typically best if the insured has other assets that can be converted for use for final expenses, and wants to favor the policy`s beneficiaries. The death benefit could go to the beneficiaries rather than to strangers, the viatical settlement investors.
Viatical settlement companies scorn the ADB, as one might expect. They claim that ADBs pay less and slower than viatical settlements, and that it is a disadvantage that ADBs usually do not allow the insured to receive the full death benefit.
However, it may or may not be true that a viatical settlement achieves liquidity for more of the death benefit than an ADB. The planner must crunch the numbers, and it is absolutely essential to shop around for multiple viatical settlement offers. At this stage in its history, the industry is a seller`s market, and companies will try to outbid each other if there is competition.
