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Viaticals as Investments

Every now and then, a reader asks us what we think of viaticals as investments. It's a complex issue. Viatical settlements are not without risk, and they may make some people uncomfortable.

Viatical settlements involve a terminally ill person selling his or her life insurance policy to someone else. Imagine John, stricken with a fatal form of cancer. He's 36, single, and is expected to live only three more years. If he needs cash to pay for medical bills or just to spend and enjoy, he might "sell" his life insurance policy to Jane. If it's set to pay $100,000 on his death, Jane might pay $66,000 for it. That way, John gets a lot of cash now, and Jane expects to get the $100,000 in about three years. At that rate, she'd be earning roughly a 15% annual return.

There are many risks, though. John may hang on for seven years, significantly reducing Jane's return. Indeed, a cure for his cancer might be discovered. John may even outlive Jane! It's true that these settlements can provide a service for sick people, but they're not necessarily win-win. The middlemen arranging these settlements take cuts. Also, if John lives, he's without his life insurance policy and few insurers will want to insure him, as he's been so sick recently.

One downside of viaticals is that they're set up to have you rooting for speedy deaths and against medical breakthroughs. Also, there have been many instances of fraud with viaticals. (Some in the viatical industry will want to point out that they've cleaned up their act recently, and that many disadvantages are no more.) Here's more info, from the Federal Trade Commission area, the Securities and Exchange Commission, and viatical-expert.net.

Also, regarding your bigger financial picture, if you wish you had a financial pro to talk to, to address your specific personal situation and help ensure that you're saving enough and well enough to meet all your needs, then read more about TMF Money Advisor. It's a valuable service we're offering, featuring customized independent advice from a variety of objective financial pros.


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  • Report this Comment On February 16, 2009, at 2:51 PM, gjohnson126 wrote:

    This article does not accurately portray the category of life settlements that are not viaticals. May elderly people in their 80s now are selling their life insurance policies because they want the money to meet immediate financial needs or the reason they bought the life insurance is no longer a factor due to the death of a spouse. In many cases, an elderly person may be faced with letting a policy lapse because they can no longer afford to pay the premiums on the policy. Why shouldn't that person be able to sell his policy and reap some benefit from all those premiums already paid in. The people buying this policy have done the seller a service and since the person is elderly and the policy price is based on normal life expentancy there is no gruesome aspect to this. The last time I checked, all people eventually die of old age.

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