In a viatical settlement, what amount does the policy owner receive in relation to the death benefit?

In a viatical settlement, the policy owner sells their life insurance policy to a third-party buyer, typically due to a terminal illness or other specific financial needs. The amount that the policy owner receives in this transaction is typically less than the actual death benefit of the policy.

This happens for several reasons: the buyer takes on the risk of the insured's life (the insured person's death) and needs to ensure that they can recoup their investment when the policy pays out. They will discount the value of the policy to account for the time until the benefit is received and the associated risks. The settlement amount is often assessed based on the health condition of the insured, the policy's face value, and current marketplace conditions for such transactions, leading to the policy owner receiving an amount that is significantly less than the death benefit.

Understanding this principle is crucial as it reflects the financial dynamics at play in viatical settlements, establishing why the owner does not receive the full death benefit amount when they opt for this arrangement.