Getting diagnosed with a major illness can be a life-changing experience for many reasons. While a diagnosis of a terminal illness or chronic disease certainly takes a psychological and physical toll on you and your family, there is serious financial strain associated with these sorts of conditions, too. Especially with so many Americans living paycheck to paycheck, it can be difficult to imagine a path forward financially in the midst of such a diagnosis. This is true even if you have top-notch health insurance‚Äîafter all, it’s no secret how expensive some medical bills can be, even for routine bloodwork or x-rays. This is where it might be worth looking into getting a viatical settlement to help cover some of your costs.

You may not have heard about viatical settlements until recently; however, if you or a loved one has a serious chronic illness or a terminal illness, it may be in your best interest to research them. Viatical settlements offer everyday people a chance to access money from their life insurance policy before they pass away, which can be integral to addressing some of the expenses and costs associated with a diagnosis of a chronic illness or terminal disease. That being said, many people, understandably, have a lot of questions about the legality and use of viatical settlements, as well as whether or not they qualify. Read on to learn more about the ins and outs of viatical settlements—including what you can use the money for.

How do viatical settlements work?

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What exactly is a viatical settlement, and how do you qualify for one? Put in its simplest terms, a viatical settlement is a lump sum payment in exchange for your life insurance policy. This lump sum payment is given to you in cash prior to you passing away and is calculated based on the face value of your life insurance policy itself. In effect, you’re selling your ability to use your life insurance policy in the future and tapping it for some extra cash in the present, usually between 50 or 70 percent of its regular payout value.

In order to qualify for a viatical settlement, it may make sense to work with a viatical settlement broker. This is because different viatical settlement companies have different specialties and may also have different requirements that need to be met in order to qualify for getting a cash payout for your life insurance policy. Generally speaking, most viatical settlement companies want to see that you have a life insurance policy to sell, whether that’s a whole or term policy, as well as a policy that meets certain criteria in regards to its face value. It’s not uncommon to only be able to qualify for a viatical settlement if your life insurance policy has a face value of at least $100,000, for example. Beyond these factors, one final aspect of qualifying for a viatical settlement payout is a medical diagnosis of a chronic or terminal illness. Remember that viatical settlements primarily exist to help people with these sorts of life-altering conditions, which is why you must be able to prove that you’ve been diagnosed with a condition that necessitates cashing out your life insurance policy early.

Are there limits for what you can use your viatical settlement money on?

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One of the biggest benefits of getting a viatical settlement is that you get to choose how you use that money. If you have mounting medical bills or are running the risk of having to file for bankruptcy, a viatical settlement could be the thing that helps you and your family avoid financial ruin. That being said, there are some things that make more sense to spend a portion of your viatical settlement on than others. It would be frivolous to buy a new car if you don’t need a new one with special equipment to accommodate your diagnosis, for example. On the other hand, if you’re now required to use specialized medical equipment that requires electrical power, looking into a company that offers generator hire or rental could be a wise move. A backup diesel generator can help you be more prepared for emergencies and be well worth the money for the peace of mind it offers.

Many people decide to downsize their homes as a result of getting a severe medical diagnosis, at which point a viatical settlement could be an excellent way to cover some of the costs associated with readying your property for sale. For example, you may decide to use some of the proceeds from a viatical settlement to help fund some much-needed renovations or repairs in your home, such as replacing a boiler or repairing your roof. New windows can also be a major selling point for many potential buyers since it means that the home will stay insulated better and remain energy efficient longer. If you need a local Michigan option for your window work, consider looking for replacement windows in Muskegon or another nearby city. Many times, you’ll save a lot of money without sacrificing craftsmanship by shopping with a local contractor for this kind of work. This enables you to use your viatical settlement to its maximum effectiveness by stretching your dollars where necessary.

Do you have to pay taxes on a viatical settlement?

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If you’re using a viatical broker to receive your viatical settlement, you generally don’t need to pay taxes on the income you receive. This is another major benefit of utilizing a broker or experienced viatical settlement company since it can result in your peace of mind that everything will be handled smoothly when it comes to getting a lump sum. That being said, it’s never a bad idea to look into local regulations surrounding viatical payments since different areas do have different laws that apply to the payment. Once you know that you’re considering a viatical settlement, it’s not a bad idea to reach out to a viatical settlement provider to get a quote from them about what you might qualify for and have other questions on your mind answered, too.