Questions? Call Now: (866) 459-1271

Borrowing Against Your Life Insurance Policy Compared to Viatical Settlement (Sale)

May  27,  2015 in

People who have been diagnosed with a catastrophic or terminal illness have more than enough on their plate without having to worry about money. Unfortunately, the reality is that even with the very best health insurance, medical expenses are very high and the bills arrive in the mail every day and can quickly become overwhelming.

If you are in this predicament, then you should know that your life insurance policy provides you with ways for getting immediate cash income, including viatical settlements and borrowing against your life insurance policy. These two options are extremely different, and it is important that you understand what each does and does not offer and how they compare before you make a decision about what is best for you.

Selling Your Life Insurance Policy

A viatical settlement offers you the option of selling your policy to an investor or company. You as the named insured receive a cash payout that is calculated based on the face value of your policy and the amount of time that it is expected that you will live. The third party that purchases your policy becomes its owner – they pay you the calculated amount (which is usually between 30 and 80 percent of the policy’s death benefit) and assume the responsibility for paying your premiums, and in exchange when you die they get the full face value of your policy.

Borrowing Against Your Life Insurance Policy

Borrowing against your life insurance policy allows you to receive a cash advance on the face value of your policy. You as the named insured would receive a cash payout that is usually between 35 and 75 percent of the policy’s death benefit, and this payout reduces the overall value of the life insurance policy. It does not, however, change the terms of your policy. At the time of your death, the lending company gets back the amount that they have provided to you as a loan (plus interest and expenses such as payments they have made to your policy), and the remaining balance of your policy’s value gets paid to your named beneficiaries.

Here’s an example showing how borrowing against your life insurance policy compares to selling your life insurance policy through a viatical settlement.

Insurance Loans vs. Viatical Settlements

*Note: Loans for Living Program is now called our Funds for Living and Giving Program.

What Are The Benefits of Borrowing Money From Your Life Insurance Policy?

Though both a viatical settlement and borrowing against your life insurance policy can provide you with the money that you need for medical expenses, living expenses, or even to use for other reasons such as vacations or gifts to loved ones, there are important differences that you need to understand.

  • The money is yours to use as you see fit – for emergency funds or a specific, planned use.
  • There is nothing to repay and you have no personal liability to repay the loan.
  • You do not lose your life insurance (unlike a viatical settlement).
  • Your beneficiary receives all remaining funds once the loan is repaid from the life insurance policy’s death benefit.
  • You will never have to make life insurance premium or loan payments.
  • Your policy’s death benefit repays the loan.
  • There are no application fees, hidden fees, credit checks or medical exams.
  • There is typically no impact on other assistance programs.
  • The money from the loan is generally not taxable.*

*Because each individual situation is unique, we recommend you speak with your legal, estate or tax planning advisor.

How Can You Use Funds From Your Life Insurance Policy

Though both a viatical settlement and borrowing against your life insurance policy can provide you with the money that you need for medical expenses, living expenses, or even to use for other reasons such as vacations or gifts to loved ones, there are important differences that you need to understand.

Perhaps most importantly, when you choose a viatical settlement you eliminate the chance that your loved ones will receive any insurance money from the policy that you have invested in for so many years.

It is also important to realize that the decision about the cash payout that you receive is out of your control and will be made by an outside party. On the other hand, borrowing against your life insurance policy allows you to receive the money you need by using a portion of your policy value to fund it quickly. You could receive funds in as quickly as 3 weeks. In most cases, your policy still provides a payout to your loved ones after you are gone.

Making a decision about what is best for you is highly individual and dependent upon your specific circumstances. Know your options and ask questions.

Contact Us

Relieve financial stress with the FLAG Program, a viatical alternative that uses your life insurance for a cash advance

Related Posts