Investing in Death Benefits Ð Exploiting AIDS patients
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.
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.
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.
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
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.”
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.”
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.
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?
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.
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.