Viatical life settlements are a type of investment in which a dying or chronically ill person sells his or her life insurance policy for a lump sum to a third person or entity before the life insurance policy matures. This lump sum is usually less than the policy's face value but greater than the sum total of the premiums paid or the cash surrender value at the time of settlement. Note, however, that insurance companies will add surrender penalty charges to viatical settlements along with interest charges for any loans against the life insurance policy.

For those investing in viatical settlements, the return on the investment hinges on when the insured dies. Investors most commonly buy viatical settlements from third party investment companies acting as resellers. Viatical settlement providers or investors may be individuals or institutions. The peak of popularity for viatical settlements as an investment vehicle was during the emergence of the acquired immune deficiency syndrome (AIDS) epidemic in the 1980s.

There are no uniform federal standards or regulations for viatical settlements. Regulations may differ on a state by state basis, and can usually be found through a state's insurance commissioner office.

As an example, the state of California requires that people or institutions obtain a viatical settlement license from the state insurance commissioner if they engage in the following activities:

1. They purchase life insurance policies from insureds or from certificate holders
2. They assist the insureds or certificate holders who are selling their life insurance policies
3. Viatical settlement providers sell investments in viatical settlements of those insured with life-threatening or catastrophic illnesses

Action Steps
The best contacts and resources to help you get it done

Visit the website of your state's insurance commissioner for information about viatical settlements

If you're simply seeking a deeper understanding of viaticals, explore specific information and regulation resources from the insurance agencies of a variety of states.

I recommend: On the National Association of Insurance Commissioners (NAIC) website, there's a clickable map of the US that can help you find your state's insurance commissioner website for viatical settlement information specifically pertaining to your state. For example, the Michigan Office of Financial and Insurance Services warns against the risks of viatical settlements as an investment (PDF). The Florida Office of Insurance Regulation offers a list of licensed viatical settlement providers as does the California Department of Insurance.

Understand the pros and cons of investing in a viatical settlement

Because of the lack of federal regulation, be aware of possible fraudulent activities before investing in viatical settlement agreements.

I recommend: Gloria Grening Wolk, author of "Viatical Settlements: An Investor's Guide," has an informative website, Viatical-Expert.net, offering valuable tips for viatical settlement contracts investors and sellers. AARP.org also has extensive information as well as a list of primary information resources on the risks and rewards of viatical settlement contracts investments.

For those wishing to obtain a viatical settlement, learn about the process

Find out if you might qualify for a life settlement, an offshoot of viatical life settlements through which the insured can sell his or her life insurance policy before it's determined that he or she has a life-threatening illness.

I recommend: Viatical-Web.org explains simply the process of arranging and selling viatical settlements and provides an explanation of how life settlements differ. Find out from Coventry Group, a major provider of viatical settlement solutions, if you qualify for a life settlement. NAIC gives tips on selling viatical settlements. FindLaw has extensive consumer advice on viatical settlement agreements from the Federal Trade Commission.

If you're an insurance agent, find out how to get into the viatical insurance business

Learn how to buy and sell life insurance policies as viatical settlements or life settlements.

I recommend: Find state by state viatical settlement licensing requirements from Coventry Group. For example, get contact information on obtaining a viatical settlement license from California Department of Insurance. See an example of an "Individual Registration to Negotiate Viatical Settlement Contracts" form from the New Jersey Department of Banking and Insurance (PDF).

Tips & Tactics

Helpful advice for making the most of this Guide

• •  Depending on life expectancy, viators may expect to get 60-80% of their life insurance policy's face value in a viatical settlement agreement.
• •  Unlike a viatical settlement, a life settlement can occur long before the insured is diagnosed with a life-threatening illness.