Viatical & Life Settlement Investments

viaticalsunsetBy Charles Dargie, Silk Road Ltd.

Viatical and life settlements have been gaining significance over the last ten years, but many people know little about them. Essentially, they involve a seller of a life insurance policy and a purchaser or investor. The transaction is unusual in that it is more than just a commercial deal. There is clear mutual benefit on each side. Following is an explanation.

A viatical settlement involves the purchase of a life insurance policy from someone who is terminally ill.
This allows the seller to use the money received in any way he or she deems fit. People who are interested in viatical settlements initially are those afflicted with a terminal illness such as cancer, leukemia, heart disease, ALS or Parkinson’s disease, who choose to sell their life insurance policies in order to be able to receive the proceeds while still alive.

Viatical companies (arrangers of settlement transactions) have helped thousands of terminally ill people and senior citizens by offering a program that provides a practical solution for financial hardships. Often, the terminally ill utilize the money to provide upgraded medical care or to help fund a more comfortable lifestyle that they would otherwise not have had without the sale of their life insurance policies. Viatical settlements give terminally ill people and senior citizens the power to make important financial decisions about the remainder of their lives.

Purchasers/investors are attracted to viaticals because they are humanitarian in nature and provide a sensible vehicle for investment planning.
Viaticals are not a stock market product and offer fixed, total returns of up to 42% based upon estimated life expectancies of up to three years.* Potential purchasers of viatical settlements should always conduct business with licensed agents who work with viatical companies that only fund life insurance policies current beyond their contestable period.

In recent times, many investors have re-assessed the risk to reward ratio of their investments after factoring in market fluctuations plus other considerations related to the stock and bond markets, CDs, money markets, annuities and savings accounts. After reviewing other financial options, viaticals and life settlement programs that offer purchasers fixed, total returns* stand up well.

A life settlement involves the purchase of a life insurance policy from a qualified senior citizen in order that he or she may obtain a higher cash value than the cash surrender value offered by the insurer.
This is a program which was developed for seniors who have current health complications and feel that they no longer need or desire a particular life insurance policy. So, a life settlement is the sale of a life insurance policy to an individual purchaser by someone who, at the present time, has health complications but is not considered to be at the terminal stage. Seniors who sell their life insurance policies for cash reduce their premium payments to zero. Many seniors use the cash to purchase long term care, seek improved medical care, give gifts to family members, reduce or eliminate debt, make charitable donations, or travel the world, to name a few options.

Purchasers of life settlements may receive a fixed, total return of up to 72%.
This is based on four to six year estimated life expectancies.* Like viatical settlements, life settlements are not traditional market products that are subject to fluctuations.

The following step-by-step description illustrates the mechanics involved in settlements:

1. Insured comes to a viatical company.
A. Through a qualified policy broker, the company reviews life insurance policies to determine which policies adhere to company standards. Policy seller and insured are informed of these standards.
B. Insured signs a release of medical records. This allows the company access to the insured’s medical records.
C. The company obtains the insured’s medical records, laboratory reports and hospital records and has them reviewed by a U.S. state-licensed physician and/or medical review company.

2. Diagnosis.
A. For a viatical: The insured must be terminally ill and usually has a life expectancy of 36 months or less. For a life settlement: The insured is usually a senior citizen with health complications and an estimated life expectancy of 72 months or less.
B. The insured’s attending physician must verify and validate that the insured is of sound mind.
C. A U.S. state-licensed physician and/or medical review company reviews those medical records to evaluate the condition of the insured and provide an estimated life expectancy. This reviewing physician then confirms to the company the insured’s diagnosis and estimated life expectancy.

3. Verify Insurance Policy.
A. Insured signs waiver to release policy information directly from the insurance company.
B. Insurance company must be rated B+ or higher by A.M. Best.
C. Policy must be past the Contestable Period.
D. Policy must be past the applicable Suicide Period.
E. Policy must allow for Absolute Assignment of Ownership and/or Irrevocable right to beneficiaries.

4. Purchaser/Investor.
A. Completes Purchase Agreement in U.S. dollar amount.
B. If qualified Retirement Plan, fills out custodial forms.
C. Returns paperwork with check.
D. Funds are deposited with an escrow agent and earn interest until policy closing.

5. Closing.
A. Contact current beneficiaries, get signed consent waiving or releasing beneficiaries’ rights.
B. Policy seller transfers insurance policy to the new owner (where applicable).
C. Purchaser or designee is recorded as a beneficiary by using a standard change of beneficiary form provided by the insurance company.
D. Check is paid to the policy seller by the Escrow Agent.
E. When applicable, funds sufficient to make premium payments for the estimated life expectancy will be paid or escrowed at the time of closing.
F. Purchaser receives a copy of the transfer of ownership form, reassignment of beneficiary form, and a report from a state-licensed reviewing physician regarding estimated life expectancy.

6. Maturity.
When the policy matures, the death benefit is paid by the insurance company to the designated beneficiaries.

Not all viatical companies offer the same level of returns or the same degree of due diligence. A purchaser should research the alternatives before making a firm decision. Viatical and life settlement investments are not designed for liquid funds that might be required at short notice or those held as emergency money. Funds must be placed for strategic investment purposes. The starting level is generally USD $25,000.

Viatical and Life Settlement programs are provided in the U.S. and are regulated state by state. As a result of the introduction of the U.S. Patriot Act and other regulations, compliance is performed with care by the leading viatical companies on all applications. This ensures that funds supplied and investor status conform in all respects.

At this point, the normal tax caveat of “Always obtain advice from a tax advisor in your home country” must be sounded. A key point to note is that the proceeds of an insurance policy are just that, rather than a stock market dividend or interest payment. Investors offshore often prefer returns that are not taxed at source.

Individuals and corporate entities in the TCI are in an excellent position to enjoy the choice of worldwide onshore and offshore investments with minimum restrictions. Viatical and Life Settlement programs can be included as portfolio components, introducing good returns plus stability. Your returns are based upon the total amount placed in the program.

Visitors to TCI and part time residents may also find this different form of investment to be worthwhile. With new regulations possibly being imposed on residents of Europe (relating to the handling of personal savings), a settlement program as an alternate product should be welcomed.

*Fixed, total returns are not annualized returns. Any annualized return will vary based on the actual life span of the insured. Consult your financial advisor. This is not an offer to sell, an offer to purchase, or a solicitation for purchase or sale of viatical or life settlements.

Charles Dargie is Managing Director of SILK ROAD LTD, Information Coordinators in TCI. He can be contacted at

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