July 1, 2002

Viatical Settlements Can Give You Peace of Mind

Selling your life insurance has an understandable appeal, particularly if you’re very ill and need cash right away. Over the past few years, viatical settlements have gained popularity among the financial planning community and policy holders. Viators are using insurance agents, financial and estate planners, as well as other financial professionals across the country for their life settlement needs.

"Policy holders can get between 50 to 80 percent of the face amount of their policies depending on their health prognosis," says Debra Pankow, North Dakota State University Extension, family economics specialist. "A viatical company thinking of buying your life insurance will demand complete access to your medical records, especially if you are not healthy, but keep in mind the reasons you bought the policy in the first place."

A viatical settlement is the sale of an existing life insurance policy. This option is most often used by individuals over the age of 65 and/or people living with a serious illness. It enables someone facing a terminal illness to utilize the present day value of their life insurance policy to ease financial burdens and create peace of mind.

"Another form of insurance settlement is a senior settlement," says Pankow. "This form of transaction creates liquidity from a non-performing asset, allowing policy owners to cash out of unwanted, unaffordable or obsolete life insurance policies. Once used for terminally ill patients with high medical expenses, for example, AIDS patients, senior settlements have recently expanded into a market targeting senior citizens who are in need of income for living expenses."

In a 1999 study, by Massachusetts research and investment management firm Conning Corporation, findings showed that the potential market for senior settlements could be conservatively estimated at more than $100 billion.

Security regulators from 21 states, report bringing actions on behalf of thousands of investors nationwide who were defrauded of more than $400 million over the past 3 years. State regulators pointed to low interest rates and aggressive marketing as fueling a rise in viatical contract sales.

" If you are approached about selling your life insurance, follow these guidelines,"Pankow says.

• Call your state insurance department to find out what, if any, licensing or regulations are in place for viatical companies.
• Consult your attorney, accountant, or financial planner. Find out the tax ramifications of viaticals.
• Contact several viatical companies to make sure the offer is competitive.
• Keep in mind that receiving a viatical settlement will probably affect any public assistance you may be receiving that is based upon financial need.
• Check into alternatives.

While growth in sales of traditional viaticals has been dramatic, the National Viatical Association recently estimated viatical brokers would purchase and resell more than $4 billion worth of life insurance policies in 2001, up from $1 billion in 1999.

"People with limited life expectancies often face significant financial difficulties brought on by the rising medical costs and loss of income. Viatical and Senior settlements enable them to sell their life insurance policy and use the proceeds to preserve their financial security," says Pankow.

To learn more about viatical and senior settlements contact your local extension agent, or call Debra Pankow at 701-231-8593, or call the North Dakota State Securities department at 1-800-297-5124.

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Source: Debra Pankow, (701) 231-8593, dpankow@ndsuext.nodak.edu
Editor: Richard Mattern, (701) 231-6136, Richard.Mattern@ndsuext.nodak.edu
Writer: JJ Camarillo, (701) 231-8371, jcamaril@ndsuext.nodak.edu