Legal Definitions - viatical settlement

A viatical settlement is a transaction where a terminally or chronically ill person sells the benefits of their life insurance policy to a third party for a lump-sum cash payment. The payment is equal to a percentage of the policy's face value. This is done to provide the person with immediate funds to cover medical expenses or other needs.

For example, an AIDS patient may sell their life insurance policy at a discount of 20% to 40% depending on their life expectancy. When the person dies, the investor receives the insurance benefit.

Viatical settlements are also known as life settlements and are common in cases where the person is terminally ill and needs immediate funds.