Viatical Settlements Australia 2025: What You Need to Know

Imagine turning your life insurance policy into much-needed cash—while you’re still alive. Viatical settlements, once a niche financial product, are stepping into the Australian spotlight in 2025, offering new ways for Australians facing critical illness to unlock the value of their life cover.

What is a Viatical Settlement?

A viatical settlement lets a life insurance policyholder sell their policy to a third party (usually an investor or viatical company) for a lump sum that’s less than the policy’s death benefit but more than its surrender value. The buyer takes over premium payments and collects the payout when the insured person passes away.

Originally developed in the United States for people with terminal illnesses, viatical settlements have started to attract attention in Australia as a means of financial support for those facing major health challenges.

• Eligibility: Typically available to those diagnosed with a terminal or chronic illness.
• Payout: The lump sum is based on policy value, premiums, and life expectancy.
• Buyer’s Role: The new owner becomes the beneficiary and pays future premiums.

2025: New Momentum and Regulatory Developments

The viatical settlement market in Australia has historically been limited, partly due to regulatory hurdles and a lack of consumer awareness. However, 2025 is shaping up to be a pivotal year. Recent updates from the Australian Securities and Investments Commission (ASIC) and state regulators are creating clearer guidelines for both policyholders and providers.

• National Regulatory Framework: In early 2025, the federal government announced a uniform approach to viatical settlements, aiming to protect vulnerable Australians while opening up legitimate options for those in need.
• Licensing Requirements: All viatical settlement providers must now be licensed under ASIC, with mandatory disclosure rules and cooling-off periods to ensure informed consent.
• Taxation Update: The ATO clarified that lump sum payments from viatical settlements are generally tax-free for those with a certified terminal illness, aligning with existing superannuation early release rules.

These changes make 2025 a turning point, with more Australians likely to consider viatical settlements as a viable financial strategy in the face of serious illness.

Is a Viatical Settlement Right for You?

Choosing a viatical settlement is a deeply personal decision and not without complexity. Here are some key factors Australians should weigh:

• Immediate Financial Needs: If you require funds for medical bills, aged care, or family support, a viatical settlement can provide liquidity when it matters most.
• Policy Value: The lump sum is often much less than the death benefit. If your beneficiaries rely heavily on the policy payout, this may not be the best solution.
• Alternative Options: Some insurers now offer accelerated death benefits or terminal illness riders that may provide similar support without selling the policy.
• Impact on Government Benefits: Receiving a large lump sum could affect your eligibility for means-tested Centrelink payments or aged pension entitlements.
• Privacy Considerations: The process may require the disclosure of sensitive medical information to third parties.

For example, consider a Sydney retiree diagnosed with a terminal illness who faces high out-of-pocket medical expenses. By selling her $800,000 life insurance policy for $400,000 through a licensed viatical provider, she gains the funds needed for treatment and to support her family—while the provider assumes future premium payments and collects the death benefit later.

The Future of Viatical Settlements in Australia

While still not as widespread as in the United States, viatical settlements are poised for steady growth in Australia thanks to regulatory clarity and growing awareness among consumers and advisers. With more Australians living longer—and often facing significant health costs—the ability to unlock the value of a life insurance policy can be transformative.

However, it’s vital to scrutinise offers carefully, compare alternatives, and understand the long-term impacts on your estate and loved ones. As with any major financial decision, the details matter.