A viatical settlement needs approval from five different parties before proceeds change hands: you as the policyholder (the “viator”), a licensed physician who certifies your health status, the settlement provider buying the policy, the life insurance company that issued it, and the state insurance department that licenses the provider and approves the contract forms. So the answer to who approves a viatical settlement is not one regulator or one company. It is a chain, and a break anywhere in it stalls or voids the deal.
Your Consent as the Policyholder
Nothing starts without you. Before you sign the settlement application, the provider or broker must hand you a written set of disclosures covering the consequences of selling your policy. Under the NAIC Viatical Settlements Model Act, which most state laws follow, those disclosures must cover:
- Alternatives you already have, including accelerated death benefits and policy loans
- Possible tax consequences on the proceeds
- Exposure of the proceeds to creditor claims
- Impact on Medicaid, SSI, and other means-tested public benefits
- Loss of policy rights such as conversion or waiver of premium
- Your right to rescind the contract within a set window
You must receive these no later than when you sign the application.1National Association of Insurance Commissioners. Viatical Settlements Model Act If a broker is involved, that broker owes you a fiduciary duty and must act in your interest rather than the provider’s.2National Association of Insurance Commissioners. State Licensing Handbook: Viatical and Life Settlement Providers and Brokers Your signature after receiving those disclosures is the first required approval, though it stays revocable during the rescission period described below.
Physician Certification
A licensed physician has to certify your health status before a viatical settlement can move forward. The certification does two things: it establishes eligibility, and it drives the price. A shorter certified life expectancy means fewer premiums the provider will pay before collecting the death benefit, which translates into a larger offer to you.
Terminally Ill
Federal tax law treats you as terminally ill when a physician certifies an illness or physical condition reasonably expected to result in death within 24 months of the certification date.3Office of the Law Revision Counsel. 26 USC 101 – Certain Death Benefits Providers commonly ask for certifications from more than one independent physician to confirm the prognosis.
Chronically Ill
You are chronically ill, for these purposes, when a licensed health care practitioner certifies that you cannot perform at least two activities of daily living (eating, bathing, dressing, toileting, transferring, or continence) for at least 90 days due to loss of functional capacity, or that you require substantial supervision because of severe cognitive impairment.4Legal Information Institute. 26 USC 7702B(c)(2) – Definition: Chronically Ill Individual That certification has to be renewed within every 12-month period.
The Settlement Provider’s Approval
The viatical settlement provider runs its own review before agreeing to buy your policy. That review is a business decision rather than a regulatory one, but no deal happens without it. The provider’s team looks at face value, policy type, remaining premium obligations, the insurer’s financial strength rating, and whether the policy is assignable. Legal staff check for restrictions on ownership transfer and any outstanding loans that would reduce the death benefit.
Providers also test the medical certification against their own actuarial models, and some hire independent life-expectancy underwriters to cross-check the physician’s estimate. If the numbers do not fit the provider’s investment criteria, the provider declines. A “no” from one provider is not the end of the road; you can shop the policy to other licensed providers.
The Insurance Company’s Sign-Off
The insurer that issued your policy does not approve or disapprove the sale itself, but it has a required procedural role that can hold up the timeline. Within 20 days after you sign the settlement documents, the provider must send written notice to your insurer that the policy has been or will be viaticated. That notice includes a copy of your medical release, the settlement application, and a request for verification of coverage.1National Association of Insurance Commissioners. Viatical Settlements Model Act
The insurer then has 30 calendar days to respond, confirm the policy’s validity, state whether it intends to investigate for fraud, and process the change of ownership and beneficiary designation. The insurer cannot unreasonably delay the ownership transfer or force you to sign forms the state insurance commissioner has not approved.1National Association of Insurance Commissioners. Viatical Settlements Model Act Once the insurer acknowledges the transfer in writing, the provider has three business days to send the proceeds. This ownership-change step is often the slowest link in the chain.
State Insurance Regulators
State insurance departments do not approve individual viatical settlements. Their approval sits one level up: they control who is allowed to offer these transactions and what the contracts have to look like.
Licensing
Both providers and brokers must hold state licenses. Brokers pass a designated examination, and providers meet financial and operational requirements set by the state insurance commissioner.5National Association of Insurance Commissioners. NAIC Viatical Settlements Model Regulation A lapsed license, whether from unpaid renewal fees or missed reporting, means the provider or broker cannot lawfully enter into settlement transactions. Licensing also matters for the federal income tax exclusion on proceeds: the provider must be licensed in your state if your state requires it.3Office of the Law Revision Counsel. 26 USC 101 – Certain Death Benefits
Contract and Form Approval
States review and approve the forms and contracts providers use, including the settlement contract itself and the disclosure documents you receive. A provider using an unapproved form is out of compliance regardless of what you personally agreed to.
Anti-Fraud Rules
State regulations also target stranger-originated life insurance (STOLI) arrangements, where outside investors recruit someone to buy a new policy specifically to sell it. Providers and brokers must disclose to the insurer any plan to originate or finance a policy for the purpose of settling it within the first five years after issuance.1National Association of Insurance Commissioners. Viatical Settlements Model Act If someone approaches you about buying a new policy with the intent of immediately selling it, that arrangement is likely illegal in your state.
Your Right to Cancel After Everyone Signs
All those approvals still are not final. Under the NAIC Model Act, you have the right to cancel the settlement contract before the earlier of 60 calendar days after all parties have signed or 30 calendar days after you receive the proceeds.1National Association of Insurance Commissioners. Viatical Settlements Model Act To rescind, you give written notice and repay the proceeds plus any premiums or loan interest the provider paid on your behalf during that period.
State timelines vary. Virginia, for instance, sets a 15-day rescission period running from when you receive the proceeds rather than the NAIC’s longer window.6Virginia Code Commission. Virginia Code Title 38.2 – Chapter 60 Viatical Settlements Act Check your state’s specific timeframe before assuming you have the full 60 days. If the insured person dies during the rescission period, the contract is automatically treated as rescinded, though the estate must repay the settlement proceeds within 60 days.