Investing in Death Benefits – Exploiting AIDS patients

Once the domain of the terminally ill, viatical settlements or arrangements - the reassignment of a life insurance policy to a third party in return for a cash settlement - are set to explode in the next decade as the market evolves to include healthy seniors looking to sell their life insurance policies.

The word viatical comes from the Latin word viaticum, which were the provisions given to Roman officials as they embarked on a journey. In these settlements the terminally ill person receives a portion of the face value of his or her life insurance policy, if lucky enough to have one, in a lump sum.

Typically an AIDS patient, who is working, will have insurance, but be unable to keep up with the payments after the illness sets in. The viatical broker will re-sell the policy to an individual or institutional investor who will receive a higher percentage if the patient's projected life span is short. 

In the summer of 1996 several things happened to change the face of viatical settlements. First, there was growing public awareness of AIDS treatment options that have the potential of prolonging the life of AIDS victims, making the settlement companies more cautious about their predictions of life expectancies for AIDS patients. Second, the health reform legislation that passed made the proceeds from viatical settlements exempt from federal taxes under some circumstances. That made viaticals more attractive to the average life insurance customer. There are now scores of companies in the field, with more jumping on every year. The shorter the person lives, the higher the return. This might strike some as ghoulish, as it should, and the scanty press coverage mentioning that AIDS support groups view "viatical settlements as a valuable option for AIDS patients who, due to their weakened immune system and susceptibility to opportunistic infections, are unable to work full time or at all" distorts the entire picture. We have to expect that from the mainstream media so lax on self-censorship.

I spoke with Dr. Jesse LaMonda CEO of Accelerated Benefits Corporation (EDD not MD) in Orlando Florida. He said that this scheme was a "win win situation for all." He told me that the patient (the industry has spread to seniors too who do not have AIDS) with AIDS needs money either for medical treatments or living expenses, so it is a win for him. The investor gets a hefty return on his or her money so it is a win too. The broker gets a nice bonus so he wins too.  Kendall Morrison was interviewed on ABC news about these investments. It certainly wasn't a "win win " for him. "I was in so much pain. I had something called neuropathy, where the sense of touch was replaced with a sense of pain. I had literally to spend every cent I had on medication, on health care."  It was a devastating time until Kendall saw a magazine ad that offered something too good to be true. It was a plan to buy out his $350,000 life insurance policy, the only asset he had. In Kendall's case he was only able to get $175,000, half the face value. Now he had money to live on. The people who bought this policy stood to collect $350,000 (they made the payments Kendall could no longer afford) when he died, which was expected to happen in two years. This strikes me as morbid and unethical. I tried to get some confirmation of this from one of the leading Bioethicists Daniel Callahan, founder of the Hastings Center. I spoke with him this morning and he said that he had never heard of viatical settlements, and could not comment, but he could comment on research. He said, "If research were to continue on people who wanted to live very long lives, maybe until 150 then that would be social chaos and I do not support that."

Many people who bought viatical settlements were cleaning up because AIDS used to be a guaranteed death sentence. As one broker said, "people were dying to make a killing." For Kendall's investors there was an unexpected surprise. Six months after his payout, in the summer of 1996 something remarkable happened. Researchers at an AIDS conference in Vancouver introduced a new class of drugs called protease inhibitors. Nearly overnight the life expectancies for many AIDS patients stretched far out into the future. Kendall said "this is the first time where I really felt like someone wanted me dead."

On January 31,2000 a Fort Lauderdale viatical company, billed as the nation's largest, was under criminal investigation and also sued in civil court for more than $600,000. This investment is completely unregulated, and so widespread greed prevails. Eight men, in six Florida cities, were named in arrest warrants issued in May 2000 for their part in fraudulent activity that Insurance Commissioner Bill Nelson says ultimately targets the elderly who invest in life insurance policies sold as viaticals.

In another instance according to the Toledo Blade (August 7,2000) investors nationwide face $75 million loss. Toledo's Liberte Capital Group LLC specialized in viatical settlement contracts. Federal agents claim they uncovered serious improprieties in the way the business was run. Hundreds of life insurance policies will lapse next month unless the Toledo Company can come up with monthly premium payments topping $350,000. The escrow account is empty and the doors of the downtown Toledo firm are locked. The assets are frozen. Investors are worried. Is this a way to live?

Despite mainstream stirrings to the contrary, most people favor a one-payer system when they understand what it is, and how easily it could be set in motion.

If we were to have this scheme in place then aberrations such as viatical settlements would disappear, along with the other private insurance companies that profit by making life miserable for the rest of us. Do they have no shame? I guess not. A one payer system could easily be financed by a small tax on gas, eliminating the defense budget which stands as high as it did during the height of the Cold War, and close scrutiny of all the so-called programs we have to benefit the very rich in this country. I am not and Economist but my intuitive common sense tells me that this is possible. It is a reality in every developed and even underdeveloped country –just not here.

Thanks to Colleen Fuller for providing the inspirational idea for this article. In 1996 North American Viatical Investments set up shop trying to lure Canadian investors. Luckily the "Depression-era legislation prohibited this type of insurance scheme in Canada with the exception of Quebec, Nova Scotia, New Brunswick and Saskatchewan." Of course there is less need for them as patients can get all their prescriptions via the Canada Health Act without involving themselves in fraudulent, immoral, and maybe unethical business insurance.