A viatical settlement is a type of financial arrangement by which a life insurance policyholder sells the policy in exchange for a lump sum cash payment. In most instances, this is done when the policyholder is terminally ill. This allows the policyholder to realize a cash settlement while still alive that may be used to cover medical expenses and other bills.

The life insurance policy will usually be purchased by a viatical settlement company, which will pay the insured party based on a set percentage of policy value. The settlement company may then sell the policy to an investor, who will take over payment of the policy premiums and serve as beneficiary. When the original policyholder dies, the investor (or the settlement company, if the policy has not been sold) will claim the full-face amount of the policy.

If you own a life insurance policy and wish to convert it into cash by way of a viatical settlement, there are certain guidelines to be aware of:

--    In most cases, you will need to have owned the policy for two or more years.

--    You will need to provide proof that you are terminally ill – some viatical settlement companies will not do business with you unless your life expectancy is two years or less.

--    You will need to allow the settlement company to have access to your medical records.

--    The current beneficiary of your life insurance policy must sign a waiver.

--    Be sure to check out the settlement company with the insurance commissioner of the state in which it is licensed. Information about state insurance regulations is available from the National Association of Insurance Commissioners at www.naic.org/consumer_life_viaticals_buyer.htm.