Brian Gruss Licensed Insurance Planner

Think It Over Carefully Before You Sell Your Life Insurance Policy

If you are suffering from a terminal illness, you may find yourself without enough money to pay for everyday necessities due to overwhelming medical expenses. You need cash quickly, so you may consider selling your life insurance policy. However, before you do, you should consider whether this is really the best solution to your cash flow problem.

Selling a life insurance policy is called “viatication.” The policy owner, usually a terminally ill person with a life expectancy of less than two years, sells their policy to a third-party for a lump sum cash settlement. The amount the policy owner receives is typically less than the face value of the policy, but more than the current cash surrender value. A viatical settlement can be as much as 50 to 80 percent of the policy’s face value.

The third party, who may be an individual investor or a viatical company, is responsible for paying the premiums and becomes the designated beneficiary on the policy.

In spite of how attractive the prospect of receiving a large sum of money all at once may be, there are some things you should consider before agreeing to a viatical settlement:

• Indiscriminate access to your private medical records – The viatical company will continually scrutinize your medical records to follow your prognosis because the longer you live, the less they will get from your policy. In addition, they will probably not use discretion when contacting you.  They may communicate with you by phone or mail, and that can make your personal business known to others.
• Negative financial implications – You should discuss with a financial planner if accepting a settlement will negatively impact probate and estate settlements. Also, you need to determine if the proceeds of the viatical settlement are considered taxable income. Under the Health Insurance Portability and Accountability Act, if the insured is terminally ill, the settlement is not subject to federal income taxes; but if the illness isn’t serious or the insured is healthy, the settlement is considered a capital gain and taxed accordingly.
• Negative impact on your eligibility for public assistance – Since public assistance is based on financial need, receiving a large settlement could affect whether you receive public assistance, and how much you receive.
• The reputability of the viatical company – Payout amounts vary by company, so you should shop around and compare. The Viatical Association of America recommends getting at least three different offers. In addition, you should contact your state insurance department to see if there are any laws that regulate how viatical companies operate and whether or not they need to be licensed.

Since selling your life insurance policy affects your family, you should discuss it with them before you make your decision. If they are depending on the policy proceeds to pay the remaining cost of your medical treatment, or for funeral expenses, they may need time to make other arrangements.

Finally, look for other alternatives. Ask your insurance company if they offer an accelerated death benefit. This provides for the payment of a portion of your life insurance policy proceeds while you are still living. Your insurer may charge you a fee, but you still retain ownership of your policy.

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Consider Short-Term Health Insurance While Looking for a New Job

If you find yourself in between jobs, you have already discovered that finding affordable health insurance is no easy task. While COBRA provides you the right to continue your previous employer’s coverage, the monthly premiums can be downright unaffordable.

Many people find short-term health insurance, also called temporary insurance, to be an affordable alternative to COBRA. This coverage helps bridge the gap between having an employer-sponsored plan and waiting for your next job.

Leaving a job often means leaving group medical coverage behind, a risky move if you don’t have other insurance options. Short-term insurance policies help remove the gamble, but they typically only protect against unforeseen sickness or injury.  Pre-existing conditions are usually excluded.

Premiums for short-term coverage are usually much cheaper than the premiums paid for COBRA. However, the costs can still seem high for a person who just lost their job. It may be tempting to forgo insurance altogether, but financial security is the main reason people buy short-term health insurance in the first place.

Without coverage, an unexpected trip to the hospital could send a person deep into debt. In fact, several published studies cite medical bills as a leading cause of bankruptcy. Short-term health insurance is designed to cover these catastrophic events.

Beyond financial protection, temporary insurance can also help prevent future insurance claims from being rejected under HIPAA, or Health Insurance Portability and Accountability Act, laws.  If an individual maintains creditable insurance coverage without more than a 63-day break in coverage, they are considered to have maintained continuous coverage, and exclusions for pre-existing conditions would not apply.  This applies even if the short-term policy excluded coverage for those same pre-existing conditions.  Approved short-term insurance policies are considered creditable coverage.

The terms of short-term medical plans usually run from 30 days to a maximum of one year, depending on state requirements. Some policies are designed to provide coverage for a specific number of days with premiums paid upfront, while other policies offer flexible monthly payment plans.

Since temporary insurance is only designed to last a few months, policyholders still need to plan for a long-term solution. If you find a new job and enroll in your new employer’s group insurance plan, make sure to find out when the new coverage starts. While it’s not a long-term solution, people in transition should consider temporary insurance as an interim solution to ease financial and healthcare concerns.

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