Housing expenses can really add up. From mortgage payments to the electricity and other utility bills, there is a lot of outgoing cash that is associated with homeownership. Cash flow issues plague owners of all stripes, but thankfully the options available to free up capital and get ahead of some of these expenses are abundant no matter how your particular situation stacks up.
What is a viatical settlement, anyway?
Viatical settlements are still a largely obscure method of extracting equity from your life insurance policy. The insurance company insures you for a certain face value, sometimes referred to as the death benefit. This is paid out upon your death to the beneficiary or beneficiaries you selected, but only if your policy remains current throughout its term. The truth is, 90% of life insurance policies are allowed to lapse by their owners, so a payout never comes.
This is often because life insurance policies are bought by younger professionals to keep their children and families protected in the event of a catastrophic accident. Whether one or both parents are working, the loss of an income stream into a family home can have detrimental effects on the financial health of the household — not to mention the incredible trauma and grief that this brings.
The protection a life insurance policy gives you against the sudden and unexpected loss of ability to work through paralysis, brain damage, death, or a thousand other tragedies is essential for a young family. The USDA estimates the cost of raising a single child is just over $233,000 from birth to age 17 (and not including the costs associated with college attendance), so income protection is crucial.
Once your children have aged out of this range that necessitates protective measures, continuing to pay on a life insurance policy can become a moot point. At this stage, many policyholders simply stop sending the monthly payments, allowing the policy to lapse and the benefit to go unclaimed, and unable to be claimed in the future. Instead, selling your policy (a viatical settlement) for a lump sum payout gives you access to what essentially becomes equity in the policy that you can take advantage of to help pay off homeowner’s insurance or other expenses. You could even use the capital to take your family on a well-deserved vacation!
Common usage of a viatical settlement for quality of life improvements.
Many homeowners that cash in on their life insurance policy opt to leverage the funds to make quality-of-life upgrades on their homes. You can use a viatical settlement to fund anything you please — it’s your money and comes with no strings attached. By contrast, some home loans are earmarked in the terms and conditions for use on home renovations or similar expenses and are not authorized for use in other aspects of your life.
With a viatical payout, you could retile the kitchen and then splurge on a new car with the excess. This is also a great way to get ahead on your mortgage payments or buy a new property altogether. Many life insurance policies are fairly substantial, meaning you could potentially utilize the capital in tandem with a modest home loan to purchase an investment property that creates a second income for you and your family in the form of a tenant’s rent payments.
Real estate professionals like those at Venterra Living are bullish on the housing market for long term capital growth, and property management has created the ability to be completely hands-off with the home. You can simply buy a property and enlist a property manager to run the day-to-day interactions and requirements that may be required with your tenants, leaving you to simple receive the check every month.
The choices available to you through a viatical settlement are truly endless, so it behooves you to learn about your options sooner rather than later.