COLUMN ONE : A Final Hope for the Dying : The terminally ill can now sell their life insurance to pay bills or make some dreams come true. Some call the new industry a godsend. Others worry about abuses.
A San Francisco pharmacist, a Los Angeles gift marketer and a doctor in the Northwest, all suffering from AIDS and crushing medical bills, found a way to raise some quick cash.
They sold their life insurance policies.
In the last year or so, the high cost of dying has given rise to a new industry, pioneered by Living Benefits Inc. in Albuquerque, that pays terminally ill patients a portion of the value of their life insurance policies in exchange for being named sole beneficiary. So far, most of those taking advantage of the option have been AIDS patients.
Spurred in part by these upstart “brokers,” insurance companies are beginning to offer similar programs. Prudential Insurance Co. of America has been the most visible, with a ground-breaking newspaper and television advertising campaign touting its “living needs benefits” program for cancer and other patients with less than six months to live.
Observers say the concept of selling life insurance policies--to many an unsavory notion--is a sign of the growing crisis in long-term health care. It is also prompting freewheeling debate about the uncomfortable subject of death.
Many AIDS support groups applaud the handful of entrepreneurs who buy policies, saying they give those afflicted with the impoverishing disease a chance to die with dignity.
Yet some state insurance officials and ethicists point to the potential for abuse in the as-yet-unregulated business. They contend that financially strapped individuals contemplating the sale of their policies might be too ill to act in their own or potential beneficiaries’ best interests.
At the very least, skeptics note that the practice gives policy purchasers a financial stake in their clients’ early deaths, the sooner to collect on lucrative policies. The industry’s image wasn’t helped when a Brooklyn, N.Y., man chose for his company the ghoulish name BGR International Inc., for Beat the Grim Reaper.
“Our feeling is . . . it gives people expanded options and expanded access to financial support when they really need it,” said David Hansell, director of legal services for the Gay Men’s Health Crisis in New York, the nation’s largest AIDS service and advocacy organization.
“On the other hand, we’re concerned that it should not be coercive or take advantage of people’s desperation.”
Far from feeling exploited, Clay, 37, an out-of-work San Francisco pharmacist who asked that his last name not be used, was grateful when he learned of this offbeat way to tap funds.
Diagnosed in January, 1988, with pneumocystis carinii pneumonia, a life-threatening respiratory ailment associated with acquired immune deficiency syndrome, Clay sank into a deep depression. What he most wanted was a house with a garden, but he felt that his finances were too shaky to take on a bigger monthly burden than he already had with the condominium he owned.
When he suggested that his insurer cash out his policy, he was rebuffed. Then a friend gave him a brochure about Living Benefits Inc.
After consulting with his parents and his accountant, he phoned a toll-free number and talked with Rob T. Worley, an entrepreneur with other interests in baking, rentals, manufacturing and equipment leasing.
Worley’s son, Rob T. Worley Jr., a life insurance agent, first had the idea of setting up a company to buy insurance policies after listening to a radio talk show in 1986. On the program, a terminally ill caller told of a vain effort to get his insurance company to buy back his policy.
After studying the idea for a couple of years, the Worleys set up shop in a tidy suite of offices in northeast Albuquerque. They bought their first policy in April, 1989.
Making the Deal
On the phone last August, Clay recalled, he and the elder Worley spoke of traveling, gardening and some “deep things.”
Despite initial misgivings, Clay liked what he heard and, last March, sold his $280,000 policy to Living Benefits for $151,000.
Although the Worleys say they will consider patients with 24 months or less to live, they made Clay wait until doctors certified that he had only 18 months. In the hope of avoiding lawsuits down the line, the Worleys also ask that friends or family members who would have been beneficiaries sign waivers.
The Worleys say they generally pay 55% to 80% of a policy’s face value, depending on interest rates, how much they will have to pay in premiums and how long the patient is expected to live, as determined by a panel of doctors who analyze medical records. Usually, the application process is conducted by mail and phone.
As of mid-June, the Worleys had bought or signed contracts to purchase 71 policies, for a total of $8.5 million, with an additional 69 applications in the pipeline. To date, they have cashed in $1.5-million worth of policies after the holders’ deaths.
Fulfilling his dream, Clay used proceeds from his policy sale and profits from previous real estate deals to buy a modest three-bedroom home in the Miraloma Park section of San Francisco, complete with a hillside garden dotted with colorful marigolds, petunias, irises, dahlias and tomato plants.
“At first I thought these people must really be sleazeballs, but I said: ‘He’s doing me a service,’ ” Clay said. “I had been ready to give up and die. This has given me a reason to live.”
Similarly, a 38-year-old doctor in the Northwest found selling his policy to be a godsend after being hospitalized with AIDS.
“I used up all my savings, lost my house and declared bankruptcy,” said the doctor, who at one point had earned $300,000 a year. Now he makes only about $4,000 a year, most of which pays for medicine.
He recently sold $200,000 of his $800,000 in life insurance to Steven Simon, who heads American Life Resources Corp. in Miami. The doctor said he will use some of the approximately $120,000 he received to travel with his roommate and the roommate’s daughter to Alaska to celebrate her sixth birthday.
“I was very leery,” the doctor said. “But once I met him (Simon), he was a really nice guy. He has just made my life pleasant again.”
Robert, a former gift buyer at Bullock’s in Los Angeles who was diagnosed with AIDS-related Karposi’s sarcoma a year ago, had planned to name two nieces as beneficiaries. But after racking up thousands of dollars in medical bills, he decided to sell his policies to Simon’s company.
“My parents were very supportive of my cashing in,” he said. “I still plan to give my nieces some money for education, but I need to have the money liquid.”
Robert, who doctors have said has just a few months to live, sold two policies to Simon, receiving nearly $130,000. In May, he “pulled out all the stops” and threw a $20,000 party for family and friends at the Wattles Mansion in Hollywood. One guest was Steve Simon.
Firm Draws Investors
Unlike the Worleys, who buy policies and then pay the premiums with bank loans secured by their own assets, Simon said he secures money from individual and institutional investors. He declined to name them.
Like the Worleys, Simon saw great business potential and relatively low risk in buying policies, although he contended that making money isn’t his only motivation.
“It’s a nice mix of compassion and profits,” Simon said. He acknowledged that it’s too soon to tell how much he and other entrepreneurs stand to make because “it’s an inexact science.”
“We’re hoping we’ll generate 15% (return) before taxes,” Rob Worley Sr. said about the business’s profit prospects. “We don’t have any idea at this time. . . . If we start making more than we think is reasonable, we might pay more (for policies).”
Selling a policy might not be the wisest course.
For one thing, the individual could outlive the funds, leaving him or her with no recourse.
It also is possible that having a large amount of cash on hand might affect a patient’s eligibility for Social Security and other benefits.
Moreover, as the law now stands, proceeds from the sale of a policy before a person’s death are taxable as ordinary income, although legislation is under consideration on Capitol Hill that would make such prepayments tax-free for those with less than a year to live. (Despite the current law, many policy sellers have decided not to pay taxes on their proceeds. Some acknowledged that is one reason they prefer not to give their full names.)
Tax Problems Loom
Stephen Kolzak, whose AIDS-related complex forced him in 1987 to give up his post as senior vice president of talent and casting for Columbia Pictures Television, decided against selling a policy to Living Benefits after his accountant pointed out the tax liabilities.
Kolzak, perhaps best known for casting the television sitcom “Cheers,” acknowledged that he is in far better shape financially than many AIDS sufferers because of a generous disability plan.
“I already have enough of a beef with the government,” said Kolzak, an outspoken critic of what he views as the government’s lax policy on AIDS research. “I did not want to give Uncle Sam a dime more in taxes than I need to.”
In January, when Prudential began offering its “living needs benefits” option, only 10 states allowed prepayment of policies. Now the number stands at 38.
Prudential’s plan lets policyholders have most of their benefits, minus interest that Prudential would have earned on the funds, if the holder has six months or less to live or has spent six months in a nursing home and is unlikely to leave.
Once the federal legislation passes, as is expected, Connecticut Mutual Life Insurance Co. says it will offer a similar rider to policyholders with less than a year to live.
Interestingly, Prudential has found that most of those taking advantage of its plan are suffering from cancer rather than AIDS, according to spokesman Joe Vecchione.
Like most other observers, Alvin Novick, a Yale biology professor who has studied AIDS issues, views the selling of life insurance policies with mixed emotions.
“Many (AIDS sufferers) would not have a dependent who would really need their life insurance, and it would be more important to have access (to the funds) while they were still alive,” Novick said.
In Novick’s view, the key to preventing abuses would be to require that the half a dozen or so companies in this new industry be regulated by state insurance authorities. Both the Worleys and Simon say they have asked officials in their states to establish guidelines for regulation.
No Client Complaints
As yet, state regulators and watchdog agencies have not heard from clients who feel that they have been exploited.
“We haven’t heard any major outcry--not yet, but I really mean that, not yet,” said Virginia Apuzzo, deputy executive director of New York’s Consumer Protection Board in Albany. “We’re watching to see that horrendous things don’t happen.”
As grateful as some policy sellers might be, they are aware of the harsh reality that qualifying for the program means--that they are near death.
Robert, the Los Angeles gift marketer, said Simon’s office calls his doctor every month to see how the patient is faring.
“I don’t need to be reminded on a monthly basis that there’s somebody out there waiting for me to kick the can,” Robert said. “It’s a business. . . . As wonderful as the service is, when I go, they’re going to make a bundle of dough.”
