Before Investing in a Viatical Settlement
- What is a viatical settlement investment?
Patients who are terminally ill sell the death benefits in their life insurance policies at a discount so they can get cash to use during the remainder of their lives. The viatical settlement investor receives a portion of the death benefits when the insured dies. While there are sound, reputable companies that offer viatical settlement investments, these are highly risky investments; there is also a great risk of fraud.
- What kinds of problems can occur with viatical settlement
- The insured lives longer than estimated, reducing the investors rate of return and tying up the investors money longer too.
- If the policy is a term life policy, and the insured outlives the term, the investor will get nothing.
- The policy is still "contestable" (usually a two-year period), meaning the insurance company can refuse to pay the death benefits for a variety of reasons unknown to the investor.
- The investor may be required to pay the premiums on the policy to keep it in force, or the policy actually lapses before the insured dies, and the investor gets nothing.
- The insurance company becomes insolvent and is not able to pay the death benefits.
- The viatical settlement company goes bankrupt and the investors money is lost or tied up indefinitely.
- What are the possible risks of fraud in viatical settlement
- The policy is fraudulently obtained by the insured (for example, by concealing or misrepresenting his or her health condition) so the insurance company refuses to pay the death benefits.
- The viatical settlement company misappropriates the investors money and never purchases the insurance policies.
- The investor is not the named beneficiary on the policy, and the viatical settlement company never pays the investor the proceeds.
- What about the guaranteed return on my investment?
With advancing medical developments, predictions about life expectancy are nothing more than guesses. And, since the return on an investors investment depends on how long the insured lives, an annual rate of return cannot be guaranteed. Finally, the "guarantee" assumes that nothing goes wrong with the investment.
- Do you know all the facts?
- Who pays the premiums on the insureds policy?
- Who monitors the insureds whereabouts and health?
- Did the doctor who estimated the insureds life expectancy actually examine the insured?
- Who is responsible for obtaining the insureds death certificate?
- Who is responsible for making a death benefit claim?
- What percentage of the investors "humanitarian" investment does the insured get?
- Does your sales agent receive a commission on the investment how much?
- Are there any fees or costs the investor may have to pay what are they and how much?
- Isn't a viatical settlement contract simply another form
of insurance investment?
No, because viatical settlement investments are securities under the California securities law. Although a federal circuit court in one case called Life Partners found that a particular viatical investment offered was not a security, that case is not binding in California state courts. SB 1837 specifically defined "viatical settlement contract or a fractionalized or pooled interest therein" as a security under California law.
- Is a viatical investment an appropriate investment for
Viatical settlement contracts may not be a suitable investment for you. Suitability is determined by considering various factors, including your age, your financial situation, your risk tolerance, other personal circumstances and your investment objectives. This is one more reason why viatical investments should only be sold through Licensed securities broker-dealers and should be qualified as investments by the state.
- If you have more questions, whom can you call?
The California Department of Corporations regulates firms and individuals in the securities and investment industries, including stockbrokers, investment advisers, and financial planners. The Department also regulates investment products. The Department can provide you with information about Licensed firms and their agents and representatives, and about investment products. So, before you invest your money, take the time to check the backgrounds of your broker-dealers or investment advisers and make sure you understand all the risks associated with your investment, and that the investment has been properly qualified. The Departments Consumer Services Representative can be reached at (213) 576-7643.