Viaticals, a settlement made on a life insurance policy for a person who is terminally ill, have been touted as one of the hottest investments around. Some advertisements have promised returns as high as 100%.
But there are several problems. First, making great returns means betting on the quick death of the life insurance policyholder. Second, some viatical offers have turned out to be fraudulent. In fact, sales of viaticals are one of the top 10 investment scams in the U.S., according to the North American Securities Administrators Association.
And, third, at present you can’t legally purchase viaticals in Mississippi because no companies have been licensed to sell viaticals since a law was passed in 2000 requiring registration with the Secretary of State’s office.
The legislation was enacted in 2000 at the urging of Secretary of State Eric Clark and Insurance Commissioner George Dale because of concerns about viatical scams. Under the law that was passed, Dale’s office regulates the insurance portion of the transaction and Clark’s office regulates the investment aspect under the state’s securities laws.
David Blount, spokesman for the Secretary of State, said that their office received complaint calls prior to enactment of the legislation, which was one reason for the concern. Monitoring of the national situation with the investment device was another impetus for the legislation to protect consumers in Mississippi.
Blount said viaticals could only be sold legally in Mississippi after a business registered with the Secretary of State. That action was taken to prevent scams involving the risky investments from moving into Mississippi. Since no businesses have registered, any attempts to sell viaticals should be reported to the Secretary of State at 1-601-359-1633 or 1-800-804-6364.
Viatical settlements involve the sale of an existing life insurance policy through a broker to a third party. In the transaction, the seller receives a percentage of the value of the policy immediately. After the sellers’ death, the broker is paid a fee, and the difference remaining on the policy is paid to the investor.
Life insurance is usually purchased with the idea that it is a safety net for a spouse, children or other survivors to help make life easier after the death of the policyholder. But for people facing a chronic or terminal illness, it may be more critical to meet pressing financial needs while the policyholder is still alive. In that case, a viatical settlement can be used to tap the value of the life insurance policy.
Shep Montgomery, a spokesman with the Mississippi Department of Insurance (DOI), said the use of viaticals grew out of the AIDs crisis. Now there are new drugs that extend the lives of AIDS patients, and viaticals have grown to become more broad-based for use in the general population for people with terminal diseases.
While a viatical settlement can be an important safety net, David Haddock, a consumer services assistant with the DOI, said people need to do their homework before accepting a viatical settlement.
“Make sure the entity offering to buy the policy is licensed in the state,” Haddock recommends. “The portion they pay is a negotiable amount. You don’t have to take what is offered.”
Haddock said it makes sense to shop around for the best rate. He also recommends people look at their life insurance policy to see if it has an accelerated benefits clause that allows the policyholder to be eligible for a portion of the face amount of the policy without selling the policy.
“The policy may contain a clause that if you prove to your company that you have a terminal illness, they will pay you a stipulated percentage of the policy,” Haddock said. “That way you don’t have to sell the policy to anyone, and what is left will still be paid to your beneficiaries at death.”
For more information on precautions recommended for viatical settlements, see the Web site http://www.doi.state.ms.us/publish/viaticalsettlementfacts.html or call the DOI at (601) 359-3569 or 1-800-562-2957.
Contact MBJ staff writer Becky Gillette at email@example.com or (228) 872-3457.