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A viatical settlement is the sale of a policy owner's existing life insurance policy to a third party for more than its cash surrender value, but less than its net death benefit. Such a sale provides the policy owner with a lump sum. The third party becomes the new owner of the policy, pays the monthly premiums, and receives the full benefit of the policy when the insured dies.
"Viatical settlement" typically is the term used for a settlement involving an insured who is terminally or chronically ill. A person generally is chronically ill if the person is unable to perform at least two activities of daily living, such as eating, using the toilet, bathing oneself, or dressing oneself; requires substantial supervision to protect himself or herself from threats to health and safety due to severe cognitive impairment; or has a level of disability similar to that described in as determined in the U.S. by the Secretary of Health and Human Services. A person generally is terminally ill if the person has an illness or sickness that can reasonably be expected to result in death within two years.
As medical advancements improved the lives of those persons living with terminal or chronic illnesses, the life settlement industry emerged.
Viatical Settlement as a term is considered out of date. The industry uses life settlement as the formal terminology. Technically, a viatical is a life settlement where the insured has less than two-year life expectancy. However, some jurisdictions, such as the U.S. state of Maryland, use the term viatical settlement instead of life settlement in their regulatory documents.