Dying Sell Off Their Life Insurance : Business: Firms buy policies at a discount and cash them in when patients die. Some say the practice is a blessing. Others call it ‘ghoulish.’

Tom has AIDS, and he was sinking fast.

He lost his job, and his monthly Social Security checks didn’t begin to cover his rent, food, medical expenses and other bills. The former real-estate salesman was in real danger of losing his home.

Then the 34-year-old Boston man heard about an upstart company that buys the life-insurance policies of terminally ill patients at a discount, cashing in when they die.

Tom, who asked that his last name not be used, sold his $100,000 policy for about $53,000. “I think it’s a great idea,” he said. “It benefits the person who is suffering.”

“We’ve had a few people that say this is ghoulish,” said Rob T. Worley Sr., who started Living Benefits Inc. with his son, Rob Jr. “But once they think about it, they change their mind.”

Living Benefits, based in Albuquerque, N.M., requires prospective clients to provide evidence that they have 18 months or less to live.

The company usually pays 55% to 80% of a policy’s face value, depending on factors such as how long the person is expected to live and prevailing interest rates. In return, customers list Living Benefits as their sole beneficiary.

Since the Worleys bought their first policy last April, at least two other for-profit companies have opened their doors: American Life Resources Corp. in Miami and Beat the Grim Reaper International in New York.

“I don’t think there’s anything as guaranteed as this is in terms of getting a return,” said Herman H. Silverman, a high school English teacher who started Beat the Grim Reaper last fall as a part-time business in his home.

“As long as they’re going right now anyway, there’s a service that I can provide for people who want to have their money right now,” Silverman said.

The life-insurance industry recently started offering its own version of living benefits.

Prudential Insurance Co. recently announced a plan that would let policyholders with six months or less to live get the bulk of their life-insurance proceeds before they die. But the plan is available in only 10 states.

Other companies have taken steps toward living benefits, but usually allow policyholders to withdraw no more than half the policy’s face value, and then often only in monthly installments.

As might be expected, the industry is ambivalent about entrepreneurs venturing onto their turf.

“We recognize there’s a desperate need. The high cost of dying just goes up every year,” said Robert Waldron, spokesman for the American Council of Life Insurance. “On the other hand, this gives a third party who’s not family an economic interest in a policyholder’s death. As a concept, that is dangerous.”

If more insurance companies follow Prudential’s lead, he said, he expects “that those private companies would very swiftly lose their market.”

But the private companies don’t think so.

American Life Resources started accepting applications last fall and bought its first policy in January.

“It would be my great pleasure to take the shingle off the door,” said its president, Steven Simon. But then he tells how, as a volunteer with an AIDS buddy program, the first person he visited was sleeping on a bare floor. The man had been forced to sell his bed.

“This is a story that’s being told every day in every part of this country,” Simon said. “People in the prime of their lives are having every dignity that you and I take for granted just robbed from them.”

Worley said his company has saved at least six homes from foreclosure since beginning operations. Living Benefits has bought about 50 policies, about 50 purchases are pending and about 200 applications are out, he said.

Silverman would not disclose how many policies Grim Reaper has bought.

All three companies say the most interest comes from people with AIDS, mainly because AIDS groups have a well-developed national information network.

Simon and Worley say they do no advertising. Silverman has advertised in the classified section of a New York-based gay newsmagazine, and also distributed flyers once at the Memorial Sloan-Kettering Institute for Cancer Research in Manhattan. He said administrators there “went into a panic.”

“Inside of about a day or two, they managed to collect all of my stuff and called to inform me they had thrown it out,” Silverman said. “These people just have an aversion to dealing with the financial aspect of terminal illness.”

A hospital spokeswoman said she could not confirm the story or comment further.

The entrepreneurs concede that they are wandering into mostly uncharted legal territory. New Mexico is the only state to have regulated the new industry, adopting for the most part the policies the Worleys developed in 2 1/2 years of researching the concept.

“We wanted to be regulated,” Worley said. “All states need to regulate this just to be sure that people are not being taken advantage of.”

That wasn’t a concern for Fred, a 59-year-old San Diego man with cancer who sold his $250,000 policy to Living Benefits for about 65 cents on the dollar. Fred, who also asked that his last name not be used, is spending some of the proceeds to build a new house for his wife.

“It’s like having your cake and eating it too,” he said. “As far as I’m concerned, I’m going to keep living.”