Scam Alert – Viatical Scams

The sale of a life insurance policy to a third party is not a particularly modern concept, but the viatical settlement sector only began organizing as an industry in the mid 1980s. A small handful of funding firms, backed by sizable loans and credit lines, recognized that a rising number of AIDS patients were cash poor but held large life insurance policies. These terminally ill insureds had relatively short but predictable life expectancies, and they faced a dire need for immediate cash to pay for expensive medical treatments, experimental drugs, and basic living expenses. As long as these AIDS patients managed to find and work with a reputable viatical funding firm who offered them a fair price for their policies, based on a realistic life expectancy, this new planning option was extremely effective. Unfortunately, as word spread of the high potential profits to be made, several less ethical firms began taking advantage of the dying insureds, offering only a fraction of a policy's true value by making overly optimistic mortality assumptions, and in some cases, accepting ownership of the policies but never paying the insureds. Fraudulent viatical settlements schemes have taken off as they can attract people who are desperately in need of more money from their small investment funds, by offering returns that are above market rates. It seems that everywhere you look, viatical settlement companies are advertising high payout rates to policy owners, high guaranteed returns to investors, and high commissions to advisors. Their marketing efforts target everyone--from seniors to charities, from the terminally ill to the completely healthy, from advisors to hospice social workers--promising unparalleled financial, estate, and income tax benefits. At the same time, the news is full of stories of complicated scams, lost investments, and unregistered rogue companies. If you are considering a viatical settlement, please do your homework.  Ask a trusted financial advisor or your estate planning attorney for alternate planning suggestions or recommendations to an established funding firm.