Investing In Viaticals

In a viatical settlement the consumer (called a "viator") sells his or her life insurance policy to a viatical settlement company (called a "provider") for a lump sum payment that is a percentage of the policy's face value. The viatical provider then becomes the beneficiary of the policy, and is responsible for making the premium payments. When the viator dies, the viatical provider collects the full face value of the policy.

Investigate Carefully

Before you invest, do your homework to help you decide if viaticals or senior settlements are safe and right for you:

• Consult with a trusted financial adviser before you commit to any investment.
• Contact your state insurance or regulatory agency to check whether a firm and its sales agents or brokers are licensed to sell viatical or senior settlements (not all states require licensing).
• Ask about the firm's and broker's disciplinary histories and about past or pending litigation.
• Ask your state attorney general and Better Business Bureau about complaints, lawsuits or court rulings against the viatical company.
• If you're promised a guaranteed return on your investment, walk away. Viatical investments cannot be guaranteed: They are based on life expectancies that can vary widely.
• Insist on getting the address of the life insurance company and the number of the policy in which you're investing. Be sure the company and policy are real.

Ask your viatical salesperson for the following information:

• Am I assigned as the beneficiary or owner to the policy? Get written evidence of your standing. If you're only a beneficiary and not the owner, the owner may change the beneficiary without notification.
• How will I know where the policyholder is and what the state of his or her health is?
• Did a doctor actually examine the policyholder? If so, was the exam in person, or did the doctor rely on other medical reports?
• Did a qualified professional determine the policyholder's projected life expectancy?
• Who obtains the insured's death certificates and who makes the claim for the death benefits?
• Can the viatical firm prove it has the cash on hand to pay out on my investment? Be sure the firm creates an escrow account with a reputable escrow company (one you've checked out) to ensure the money is available for paying you when your investment comes due.

Senior Settlements

The "senior settlement" has emerged recently as a hot new financial instrument, but law enforcement officials and some financial advisers caution investors against dishonest practices by unscrupulous salespeople and companies.

Senior settlements - also called life settlements - are similar to viatical investments. In these arrangements, a person 65 or older who no longer needs an existing life insurance policy - typically worth $1 million or more in most transactions - sells it for less than its face value.

The buyer/investor pays the premium on the policy and, like a viatical, the payoff comes when the insured person dies. In most cases, the seller of the policy has health problems but, unlike a viatical, not a terminal illness.

According to the National Association of Insurance Commissioners, the licensing and disclosure laws that apply to viaticals do not govern senior settlements, leaving them unregulated in many states.

General Consumer Rights Message Board for more help