What does the term "viatical" refer to in insurance?

The term "viatical" refers specifically to life insurance policies that are sold for cash, typically by policyholders who are terminally ill. This arrangement allows the policyholder to access a portion of the death benefit while still alive, providing immediate liquidity that can be used for medical expenses, living costs, or other needs. When an individual sells their life insurance policy through a viatical settlement, they receive a lump-sum payment that is less than the full value of the policy but greater than its cash surrender value.

This process benefits policyholders, enabling them to obtain funds to manage their financial obligations, while the buyer of the policy, often an investor or viatical settlement company, ultimately collects the death benefit when the insured passes away. Understanding viatical settlements is crucial in the context of life insurance, as it highlights alternatives available to policyholders facing significant health challenges.