When facing a serious illness, financial relief can be essential. One solution many turn to is a viatical settlement—the sale of a life insurance policy to a third party in exchange for a lump-sum cash payment. However, while the immediate cash can be life-changing, understanding the viatical settlement taxes in Fort Lauderdale, FL is crucial for making informed financial decisions. At Summit Life Insurance, we help policyholders navigate these complex tax rules and secure peace of mind during challenging times.
What Is a Viatical Settlement?
A viatical settlement occurs when a life insurance policyholder with a terminal or chronic illness sells their policy for a percentage of its face value. This option allows them to access funds to cover medical expenses, care, or quality-of-life needs.
In Fort Lauderdale, FL, viatical settlements are regulated to protect consumers, and understanding how these funds are taxed is key. At Summit Life Insurance, our licensed brokers assist clients every step of the way—from qualifying to tax planning.
Are Viatical Settlements Taxable?
One of the most common questions clients ask is: Are viatical settlements taxable? The answer depends on several factors, including the health condition of the policyholder and who buys the policy.
Tax-Free for Terminally Ill Policyholders
If you’re certified by a physician as terminally ill (meaning you have a life expectancy of 24 months or less), then under IRS Code Section 101(g), the proceeds from a viatical settlement are not taxable as income. This means:
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No federal income tax
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No capital gains tax
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No reporting requirement on your tax return
At Summit Life Insurance, we work with terminally ill policyholders to ensure proper documentation is in place for tax-exempt status.
Tax Considerations for Chronically Ill Individuals
If the policyholder is chronically ill rather than terminally ill, things get a bit more complex. To qualify for tax-free treatment in this case:
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The funds must be used for qualified long-term care services
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The buyer must be a licensed viatical settlement provider (like those working with Summit Life Insurance)
If the proceeds are not used for healthcare purposes, some or all of the settlement may be considered taxable income. That’s why our team at Summit Life Insurance guides clients in Fort Lauderdale to make strategic decisions that maximize tax advantages.
What Happens If the Buyer Is Not Licensed?
This is a key detail. If you sell your policy to an unlicensed or non-qualified buyer, the IRS may consider the viatical settlement a taxable event, even if you are terminally ill.
To ensure full tax protection:
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Use a licensed viatical settlement broker or provider
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Confirm that the provider meets IRS and Florida state standards
Summit Life Insurance partners only with vetted, licensed buyers to ensure our clients in Fort Lauderdale remain fully protected under tax laws.
State-Specific Regulations in Fort Lauderdale, FL
Florida law aligns closely with federal IRS guidelines when it comes to viatical settlements. However, state licensing requirements and consumer protections apply:
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All providers must be licensed by the Florida Office of Insurance Regulation
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Written disclosures must be provided before a settlement is finalized
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Policyholders have a rescission period (usually 15 days) to cancel the settlement
Summit Life Insurance ensures all Fort Lauderdale clients are compliant with state law and receive proper disclosures regarding taxes and settlement terms.
Reporting a Viatical Settlement on Your Tax Return
If your settlement is partially or fully taxable, it must be reported on your federal income tax return. You’ll generally receive a Form 1099-LTC or 1099-B from the buyer, depending on the nature of the transaction.
Our experts at Summit Life Insurance recommend working with a qualified tax advisor to report the income correctly and identify any potential deductions related to medical expenses.
FAQs About Viatical Settlement Taxes in Fort Lauderdale
Q1: Are all viatical settlements tax-free?
A: Not always. Terminally ill policyholders are generally exempt, but chronically ill individuals may have restrictions based on use of funds and buyer qualifications.
Q2: Will I receive a tax form if I get a viatical settlement?
A: You may receive a Form 1099, especially if part of your settlement is taxable. Always consult a tax advisor for accurate reporting.
Q3: Can I avoid taxes by using the money for medical bills?
A: Yes, if you’re chronically ill and the funds are used for qualified care, the amount may be tax-free.
Q4: What if I change my mind after accepting a viatical settlement?
A: Florida law typically gives you a 15-day rescission period to cancel the agreement.
Q5: How does Summit Life Insurance help with taxes?
A: We ensure all providers are licensed and guide clients through IRS and Florida requirements to avoid unnecessary tax burdens.
Work With Fort Lauderdale’s Trusted Viatical Settlement Experts
At Summit Life Insurance, we understand that selling your life insurance policy is both a financial and emotional decision. Our team provides:
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Transparent advice on viatical settlement taxes in Fort Lauderdale, FL
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Access to licensed and reputable buyers
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Help with medical certification, paperwork, and IRS compliance
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Ongoing support before and after your settlement
Let us help you turn your policy into peace of mind—without the surprise of unexpected taxes.
