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Ten years ago, no one had heard of a Viatical. The concept had not yet been born. People who had cancer just died, and the life insurance policies, if any, would be paid to the listed beneficiaries. Even in the early years of AIDS, such was the case.
Then came viaticals. But what exactly are they?
Let’s explain this via an example. The year is 1992, and Fred Smith is 34 years old, a successful interior designer and the owner of a million dollar term-life insurance policy purchased three years earlier. Plagued with some seemingly minor health problems, Fred goes to his physician and has a complete physical. The results are not good; Fred has AIDS. The doctor predicts that Fred will die within one to three years.
Prior to the introduction of viaticals, one of Fred’s relatives or friends were going to be recipient of $1 million from Fred’s life policy. After the viatical introduction, however, there was an option. Fred had the option of “selling” the proceeds of his life policy; receiving reduced proceeds himself, while he is still alive to use and enjoy them. Fred may want to take an extended trip around the world – or he may want to travel to a foreign country and receive expensive treatment for his disease that (for one reason of another) is not available in the US. The point is, the choice belonged to Fred.
Viatical settlements were not under the jurisdiction of any state agencies. The Department of Insurance was not involved, because the viatical company was not defined as an insurer. And where there is no enforcement-related oversight, abuses are rampant.
Desperation has its price. Fred, with no close family, had listed a niece and a nephew as the beneficiaries of his life policy. He hadn’t seen either child in more than five years, nor had he spoken to his sister, their mother. With no particular emotional attachment, Fred believed he could enjoy the heck out of what remaining time he had. And so he sought out the services of a viatical company.
The formula for computing what the policy is worth as a viatical is somewhat confusing. Naturally, nobody is going to hand Fred a million dollars (full face value) and then wait for him to die. No, a deal is going to be struck between buyer/seller that makes the arrangement worthwhile for both parties.
Many things are taken into consideration. If safe investments reap, an example, seven percent a year, the buyer is going to want to earn substantially more than that on his “investment.” Doctors are going to review Fred’s medical records with a fine tooth comb. They are charged with determining a realistic life expectancy for Fred. If the doctors agree that Fred will live approximately three years, his million dollar policy is worth the amount (today) that, if the money were deposited in an interest bearing account (at, let’s say 15 percent), it would be4 worth in three years. The lump sum that Fred is going to get today is further reduced by costs, commissions (these guys don’t work for free, you know) and more.
And so, let us say that an offer of $500,000 is made to Fred. True, it’s not the million that his niece and nephew would inherit in three years, but it’s a significant amount of money right-now-this-minute, and Fred can use it himself, how ever he darn well pleases. He can go see the Great Wall or the pyramids. He can go rent a beach house in Hawaii. He can travel to New Guinea and receive a guaranteed “cure” of intravenous papaya mixed with goat milk and shark blood.
Viatical arrangements were not limited to AIDS patients. Not at all. In fact, any type of illness that included early mortality, could be used to compute a possible viatical settlement.And, as time went on, even the paid up full term whole life policies belonging to healthy seniors could be negotiated. “Hey, Maw, let’s get us some money now and let’s take us a trip to Aruba. We ain’t go no reason to leave these big policies to them worthless young-uns of ours….”
The industry was thriving. Policy exchanges were occurring every day. Some states passed legislation which allowed them to regulate the newly emerging viatical industry. Advertisements appeared in newspapers throughout the land. Brokers for the potential buyers also advertised in publications geared toward the gay communities. “Got AIDS? Got a life insurance policy? Call us. We’ll get you money immediately….”
Many people dove into the purchasing of viaticals. Why make seven percent on your money if you can just as easily make 15 to 20 percent? And all you’ve got to do is sit back, let nature take its course, and wait for someone to die.
But in the past few years, there have been radical advancements in the medical treatment of AIDS and other heretofore fatal diseases. In the case of AIDS, powerful combinations of drugs (called cocktails) are now available, and the incidence of the virus in the blood stream is being knocked down to nearly imperceptible levels in many patients. The guy with the death sentence just a few years ago – is now expected to live much, much longer, maybe even a normal life span. The woman with a previously inoperable form of brain cancer, may now get that operation – due to recent technological advances that now make surgery possible.
In many cases, where viaticals were sold a few years ago, the prognosis of the seller has changed radically. In Fred’s case, he took the $500,000 and began enjoying the months that he thought he had left. Very early in his “final spending spree,” his doctors began treating Fred with some of the powerful new drugs. Fred dumped just over $400,000 into the stock market, parlayed it wisely, and is now worth over the million dollar face value of his initial life policy.
But what of the buyers? They are left holding the life insurance paper for a very alive corpse. While everyone else is enjoying the catapulting stock market, these buyers are looking at lost money.
While no convictions have thus far been recorded, authorities have been queasy about more than a few “accidents” and deaths.
Depending upon who purchased Fred’s viatical policy, Fred might be in major danger. To the buyer, Fred is worth a major amount of money if he’s dead – and nothing if he’s alive. To the people who own the viatical company (and who have carried their own paper), major amounts of money are available in exchange for a few well-placed bullets or well-disguised accidents.
The year is 1998. Fred Smith is driving his Mercedes 450 SL convertible, top down, and singing along with an 80s tune. The road is dark and not too many people are out driving at this time of night. Suddenly, from behind, Fred notices a set of headlights coming up fast. Two men are driving a late model Camaro and they begin to pass Fred on the left – just as he approaches a curve.
Smash!
Fred’s car goes careening off the side of the road, flips a half dozen times as it rolls down the hill, and bursts into flames when it hits the bottom. The black Camaro speeds off.
Aha, but Fred was ejected from the car on the first roll and miraculously escaped serious injury. He is taken to the hospital for X-rays and released later the same evening. Two nights later, his house catches fire when a firebomb is thrown through his bedroom window. Again, he escapes the blaze unscathed. And on – and on – and on.
This is truly the stuff that screen plays are made up of, right? Or is it? Think about it. There is also some great concern for otherwise healthy seniors who have sold their policies. They, too, are now worth more dead than they are alive.
We’ve known for years about sweetheart swindles. We’ve watched in horror as situations like “the Digitalis Case” have been exposed. But what of this, a silent killer, but deadly all the same?
© Copyright 1998 Alikim Media