Viatical and Life Settlements are cash payments made to people who sell their life insurance. Insureds are paid a percentage of the death benefit–a small percentage. Today, it is rare for anyone, regardless of how ill he or she may be, to be paid as much as 30 percent of the death benefit. The difference between viatical and life settlements is limited:
- With viatical settlements, the payment is tax-free to the terminally ill insured.
- The definition of “terminally ill” in the tax code is life expectancy of twenty-four months or less.
- Insureds whose life expectancy is longer than 24 months will be owe tax on the settlement, unless the funds are used for specific care related to a serious illness–and only those funds are exempt from tax. In other words, if life expectancy is 36 months and the insured uses the settlement to pay off the mortgage on a family home, the settlement will be taxed.
The Viatical Settlement industry took its name from a Latin word, viaticum, which means provisions for a final journey. For terminally ill people, Viatical Settlements relieve financial distress, provide for uninsured medical expenses, etc. For seniors whose policies are decades old and who no longer need life insurance or cannot afford the premiums, Life Settlements provide more cash than if they took the net surrender value from the insurer. (If the policy is term insurance, there is no cash surrender value.)
For Investors, Viatical or Life Settlements may provide greater profit than traditional investments, while doing good for someone in need.
That’s the good part.
Unfortunately, it’s the tip of the iceberg.
Too often Viators (insureds) act without information, without guidance. If they know nothing more than what an insurance agent or a settlement company tells them, they are likely to paid tens of thousands less than if they had sufficient information to make the best possible decision. Why not take time to know at least as much as you do before buying a television or a car?
Some seniors are lured to commit fraud by the local, trusted insurance agent who stands to gain tens of thousands in commissions. These seniors are lured not only by the cash payment but promises of “free life insurance” (for two years) and “zero premium life insurance.” No one warns them about the risk they take by violating the law. No one warns them about the risk their relatives take by signing waiver of beneficiary rights, as part of the fraudulent transaction.
Few Investors — including sophisticated investors like financial planners, banks, hedge funds, and even Warren Buffet — know the many risks. Buffet’s may be the dumbest investment he ever made. But he can afford to lose hundreds of thousands.
Can you afford the loss of the money you plan to invest? Do you know that this is an unregulated investment? Do you know that the SEC does not regulate companies that register? Enron, a prime example of massive fraud, was registered with the SEC. These are the reasons we set up this website in 1998–to warn and inform the public.