VIATICAL & LIFE SETTLEMENTS CONSUMER INFO

for Prudent Sellers and Investors

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viatical or life settlement contracts

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What are Life Settlements?

Similar to viatical settlements, this is cash paid to the insured who sells a life insurance policy. The difference is that the insured must be at least 65 years of age and life expectancy is predicted to be more than two years.

Life Settlements are the new fraud. The fraud begins when a relatively healthy senior is solicited to apply for one of more new life insurance policy(ies). Each policy may have a death benefit of $1 million or more. Although annual premiums may be in the five figures, the senior never pays a premium. Either the policy is sold immediately (and the senior is paid between two and six percent of the death benefit for his or her role in the fraud), or the premium is financed for two years--until it is past the contestability period.

Premium Financed Life Insurance is legal if the insured intends to keep the policy for his or her estate planning needs. It is not legal if the policy is purchased with the intent to sell. It does not matter if the sale does not occur for two or more years. Intent is key.

These fraudulent policies are known as STOLI (Stranger-Owned Life Insurance), or IOLI (Investor-Owned Life Insurance).

They are advertised to seniors as "free life insurance." If the premiums are financed and the senior dies within those two years, the senior's beneficiaries will be paid the death benefit, less the cost to finance premiums (typically at very high interest rates) and less the cost of premiums and commissions.

If the senior dies one month after the two year period, the family gets nothing. This has happened, and resulted in a few civil lawsuits filed by the families.

If the senior makes a profit and all who are involved in setting this up and selling it to investors make a profit, it is the investor who will be the big loser. A person who is 85 years old and qualifies for $1 million death benefit has been judged by the life insurance company to have at least 10 or more years of life. During that time, huge annual premiums must be paid. If they are not paid, the policy will lapse. The investment is gone.

Seniors who are party to life settlements fraud have been named in a number of lawsuits.

The names of some of these elderly fraudsters are recorded for posterity in books, such as the ones written by Gloria Wolk. They will be known for fraud--forever. This fraud, which harms retirees who are duped into thinking it is a safe investment, cannot occur without greedy seniors willing to "lend their bodies."

And there are scattered reports of some who became victims of homicide.

To date, no government agency has charged a senior with fraud--but don't count on this continuing.