Secrets To Successful Viatical Settlement InvestingYou can't beat death. But if you're careful, experts say, you can invest in the Grim Reaper's crop and harvest a profit. The investment, called a viatical settlement, is straightforward: Someone with a terminal disease, such as AIDS or cancer, sells his life insurance policy for less than face value. The buyer then cashes in the full amount at the original owner's death. The longer the life expectancy, the cheaper you can buy the policy. Buyers know the amount they'll bank, but the rate of return remains a wild card because it's impossible to apply group statistics to individual cases and determine when someone will die. That alone stamps this alternative investment vehicle "high risk." In the last few years, articles in Consumer Reports and 20/20 broadcasts stressed this rate of return black hole, scaring potential investors. To compound the issue, laws vary by state, giving viatical settlement sales a Wild West reputation. Con artists rushed to fill any gaps in the evolving regulations, making sensational headlines when they landed in court. Yet even regulators like Deborah Bortner, director of securities in Washington State and president of North American Securities Administrators Association, say viaticals can be a legitimate product when packaged right. Packaged right is the key. "Don't be afraid to say, 'This is a great idea but I don't think this is a great company,'" says Stacy J. Braverman, chief legislative and compliance officer for institutionally funded Viaticus in Chicago. Gambling on death A co-worker at the New Hampshire Association for the Blind introduced Evanell Trow to the viatical settlement concept. In 10 years, this friend had earned nearly $500,000 from an initial $100,000 stake. So when an insurance agent offered Trow a viatical settlement investment in July 1997, she and her husband sold stock in a limited property investment to get the $10,000 ante. She purchased a policy from an AIDS patient with an 18-month life expectancy. By October, the Trows had spent another $20,000 on two additional policies. Standard viatical tables indicated they could expect a rate of return between 12 and 28 percent. "But it's been almost five years and they're still alive thanks to new medications," Trow says. Her rate of return has dwindled to 4 percent. And because these patients outlived the premium funds in escrow, Trow has paid $400 out of pocket to keep the insurance policies from lapsing. "I didn't get into this to pay for someone's illness," she sighs. "I just want to get out with my principal." Her story drives home the message that viatical settlements aren't for everyone, says consumer advocate Gloria Grening Wolk, author of Viatical Settlements: An Investor's Guide. "The right people getting involved in this industry will make money, but they will not make the astronomical returns that have been promised in order to lure people who don't look past what they're told," she says. "Right" people in this case shakes out to:
It boils down to attitude. "If the stock market goes belly up, the average investor understands he has no recourse," says William Scott Page, president and CEO of Page & Associates in Fort Lauderdale, Fla., and past president of the National Viatical Association. "But let someone live one year longer than anticipated on a viatical settlement, and investors are screaming bloody murder."
Viatical vitalsTo start, work with brokers who represent the buyer only. This immediately cuts risk for conflict of interest issues, says Phil Leech, sales and marketing manager at Grand Rapids, Mich.-based Trade Partners.Next, decide which disease you'd feel comfortable investing in. And let your agent know in advance you'll consider only policies from A+ rated insurance companies like Northwestern Mutual or John Hancock. Avoid policies less than two years old. These fall into a contestable period when insurance companies may refuse to pay up on death. Plus, scams rifling through this industry often involve newer policies taken out specifically to defraud viatical investors. "Individual investors should buy into well-diversified pools as opposed to one person buying one policy," suggests Braverman. Purchase only via an escrow, where a bank or other third-party bonded agent holds your funds until the I's are dotted and the policy arrives. Then insist that the transaction is turned over to a trust, especially when you are a pool member. Under this set-up, the trust can sign for the policy payoff and disperse the money quickly as opposed to making the group wait while the insurance company tracks every member to sign off. Viatical settlement providers often obtain more than one life expectancy review in their purchasing process. Braverman asks to see them all. "You don't want to be in a position where the firm bought the policy on a very long life expectancy projection to pay less for it, then sold it to you at higher rates, citing a short life expectancy," she notes. Ask what happens if the owner outlives this projected life expectancy and depletes the premium set-aside, urges Page. In the past year, Lloyd's of London launched contingency insurance coverage for viatical settlements that meet certain criteria -- a front-loaded add-on sold at 5 percent of the policy's face value. This stop-loss option states if the owner survives 24 months beyond the anticipated maturity date, Lloyds pays the investor. The timing is too recent to offer claims history, so your decision hinges solely on your risk tolerance, according to Page. Examine the paperwork you receive. No matter how official a certificate's appearance or wording, you need a document signed by the insurance company official naming you the irrevocable beneficiary. If the policy is assigned to a trust, you should receive this official paperwork from that corner as well. A matter of trust Investors commonly purchase viatical settlements through someone they trust: a nephew, neighbor, an ex-student. Investigate them anyhow, says Wolk. Her Web site, Viatical-Expert, maintains a "hot seat" listing of firms and brokers who run afoul of authorities for anything from inadvertent failure to register to criminal convictions. Wolk also offers a list of licensed firms by state. "Scratch any company not authorized to do business in two of four states: California, New York, Washington and Florida," she says. Always phone both your state's insurance and securities commissions to probe for problems as well. Next, call the underwriting insurer to verify a real policy exists behind the number on your paperwork. Then compare the contract in hand to other companies' wording. After all, this industry is registered, not regulated, so contracts aren't set in stone, Wolk warns. "If you find another contract with sections providing better buyer protection, ask your firm to add those paragraphs," she says. "And of course it has to be signed by a principle of the company to be effective. Anything the sales agent tells you means nothing." In that vein, check out the medical reviewers who dictate the life expectancy. Call the physician's state medical board to check his practicing status and specialty. You don't want a retired family practitioner making decisions on rare cancers. Finally, drill your broker on its tracking methods. The shorter the life expectancy, the more frequently it should check the patient's physical condition -- and location. According to Braverman, these check-ups are crucial to ensure policies are put on cost-saving premium-waiver status when the patient reaches a disabled state -- and to avoid a policy lapse should that disabled state upgrade to premium-paying health standards in the future. Don't accept drivel about privacy laws barring access to these details, says Page. The only information investors can't expect is the patient's name, address and Social Security number. "Educated investors will save this industry," Wolk says. "Because even in the best of situations, if the investor isn't prepared to handle this market, it's still going to be a failure for them." Your life insurance can work for you today, when you really need it. We can put the benefits into your hands now. Having accessible cash is not only valuable but necessary, especially if you face a life-threatening illness or are approaching retirement. It leaves you free to focus on what counts: yourself and the people you love. Free to really live your life with the money you need for medical care, alternative treatments, and a comfortable lifestyle when you can no longer work. For some, a life settlement will fit their needs. For others a viatical settlement is the better option. We make it easy. Now in our second decade, Individual Benefits focuses on what is best for the individual. Nationally licensed as a viatical settlement and a life settlement broker with long standing relationships with institutional and private investors, we have the leverage to get things done. It's that simple. First, though, let us show you all your options -- even those beyond viatical settlements or life settlements -- so you can decide what's best for you. We take it personally. Our name is our promise. Individual Benefits has helped thousands of people much like you -- one person at a time, one solution at a time. Our job, and our commitment as an independent resource of proven integrity, is to negotiate the greatest possible benefits for the individual, without a fee. |
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