Are Viatical Proceeds Taxable?


Money is one of the leading causes of stress for Americans, and this can make it difficult for people to make financial decisions. There are also potential tax implications from the sale of assets. As of 2017, the U.S. government received $1.6 million in income tax from American taxpayers. 40% of Millenials report feeling stressed about their taxes. Changing tax laws and differences between state and federal tax laws are part of the reason. Budgeting for unexpected taxes is also a factor.

Individuals considering a viatical settlement may be concerned about the tax implications and how a viatical settlement would affect their taxes. As a person’s income increases, they may be required to pay higher tax rates, which could have severe financial implications. Learning about viatical settlements and how they impact your taxes can help you make sound financial decisions.

Who are Viatical Settlements For?

Viatical settlements are for individuals who have been diagnosed with a terminal illness. You may opt to pursue a viatical settlement if your life expectancy is two years or less. Viatical settlements are options for individuals with chronic heart disease, cancer, and other medical conditions that affect their life expectancy.

Viatical Settlements

A viatical settlement refers to the sale of your life insurance policy. When you purchase life insurance, the insurance company is required to pay the policy’s value to your beneficiaries after you die. With a viatical settlement, a third-party purchases your policy. The buyer then becomes the beneficiary of the policy. Upon your death, your insurance company will pay policy benefits to the buyer.

Viatical Settlement Payout Amounts

Policyholders can opt to cash in their life insurance policy while they’re alive, but they will receive less than the policy’s value. Viatical settlements also pay less than the policy amount, but they pay more than the buyout amount offered by the insurance company. Buyers consider the value of your policy when determining how much to pay in a viatical settlement. A viatical cash payout is a lump sum that can be used as you see fit.

Financial Benefits

If you opt to pursue a viatical settlement, viatical settlement taxation policies apply. However, you will not be required to pay the IRS taxes on the amount you receive. The cash sum you are paid is tax-free, which means you can use all of the funds to cover your personal or medical expenses.

Policyholders are not responsible for any insurance policy fees following a viatical settlement. This means the buyer assumes responsibility for any payments required to maintain the policy. A viatical settlement puts tax-free cash in your hands quickly, and it reduces your monthly expenses by eliminating your life insurance policy costs.

Pursuing a Viatical Settlement

Viatical settlement companies, such as American Life Fund, specialize in arranging viatical settlements for their clients. Policyholders who have received a severe medical diagnosis can consult with licensed professionals who know how to solicit the best offers. Once the viatical settlement company receives the offers, they present the options to their client. They then finalize the paperwork required to complete the sale of the insurance policy.

You may also opt to work with a viatical settlement broker to sell your life insurance policy. Unlike viatical settlement companies, brokers do charge additional fees for their services. But, brokers work in your best interest to get you the best price for your settlement.

Viatical Settlements vs. Life Settlements

Life settlements refer to the sale of your life insurance policy before your death. The policyholder does not need to have a medical diagnosis to qualify to pursue a life settlement. Life settlements are usually lower than viatical settlements because policyholders pursuing life settlements typically have a longer life expectancy than those pursuing viatical settlements. The buyers can expect more time to elapse before receiving the benefits and may have more premiums to pay.

One of the other key differences between life settlements and viatical settlements is that life settlements are taxable. Individuals who opt to pursue a life settlement will need to claim the money as income in their taxes.

Use of Funds

There are no restrictions on the use of funds you receive from a viatical settlement. A viatical settlement can provide you with financial peace of mind by enabling you to pay off your debts and cover your final expenses. Or, you can use it to enjoy your final years and fulfill lifelong dreams. It’s your choice whether you use the money to finance your medical treatment, pay for in-home medical care, cover your daily living expenses, or complete your bucket list and travel the world.

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Hi, I'm Waleed Tariq, the founder of Mind My Business NYC and author of this blog. I am an entrepreneur and internet marketer. My wish is that this website helps you to grow your business and achieve your goals.


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