What is Viatical Fraud?
Although most of the following terms were not created until months after going to
press with "Viatical Settlements: An Investor's Guide," they are described in
the 1998 text. (Note: That book has been replaced with more sophisticated, updated information in the new "Viatical
& Life Settlements: An Investor's Guide."
- Clean-sheeting occurs when a person with a life-threatening illness
applies for new life insurance and does not disclose the truth about his/her
- Dirty-sheeting occurs when a healthy person viaticates a life insurance
- The healthy person provides false medical information to indicate that
he or she has a life-threatening illness.
- Wet-ink policies
- These are new life insurance policies that are sold immediately after
being issued -- before the ink is dry.
- These policies were applied for by the insureds who intended to sell
them immediately after they were issued.
- The applicants committed fraud on the application by claiming they need
life insurance for estate planning purposes, and that a relative would be
- Wet ink is common when healthy seniors are solicited by insurance agents
who sign them up for new insurance with the intent to sell these policies.
The applicants/insureds do not pay any premiums or are reimbursed for the
- Life expectancy fraud
- The viatical company informs investors that the life expectancy of an
insured is short (i.e., 12 months) when it has data to show that life
expectancy may be 60 months or longer.
- Viatical Ponzi scam
- There have been two major fraud cases that were Ponzi scams.
so-called viatical company provided false medical and life insurance reports
for so-called viators who did not exist.
- No policies were purchased or, in
the American Benefit Services/Financial Federated case, a few were purchased after the company
realized it was under investigation.
- These were not true viatical companies. They did not provide any benefit
to people who were terminally ill. They used the funds they collected from
investors to buy luxuries for themselves.
- Premium Financed (SOLI, IOLI, SPIN-LIFE)
- Wealthy seniors are solicited to apply for new life insurance and the settlement company arranges for
premiums to be financed until the policy no longer is contestable.
- This is a tactic to get around laws that require owners and beneficiaries to have an insurable
interest when applying for new life insurance. Insurable interest, if applied to automobile insurance,
would mean John cannot get insurance for Joe's Rolls Royce, if John doesn't know Joe and would lose
nothing if the car was stolen or totalled.
- There are other types of viatical fraud, such as billing investors for
premiums after the viator's death; not notifying investors about a death;
not paying death benefits to investors for as much as a year after the
viator's demise; etc.