‘Death Futures’ May Ease Lives of the Terminally Ill, Proponents Say : Trends: Some ailing individuals sell their life insurance policies at a cut rate to investors, who receive the proceeds when the patient dies. So-called viatication business is growing in popularity.
Almost monthly, AIDS patient Clemente Castro gets a check-up call from a group of investors who are destined to receive up to $150,000 from the terminally ill man.
The catch: They don’t get it until Castro dies.
“They try to be as roundabout as possible, but they are checking to see if I’ve croaked,” said Castro, 34, of Los Angeles. “ . . . My partner would get a little sarcastic and say, ‘No he hasn’t croaked yet,’ and hang up.”
Enter the morbid world of viatical settlements--otherwise known as “death futures”--where the terminally ill sign over their life insurance policies at a cut rate to investors who receive the proceeds when the patient dies.
The business of viatication--from the Latin word viaticum, referring to the Eucharist given to a dying person--has grown in the last five years from several companies to more than 50 firms competing in a $300-million industry.
The thought of trading on another person’s mortality may strike some as grotesque and unseemly. But viatical investors see their service as more life-affirming than vulture-like. They say they deliver something the terminally ill need: Money to spend while they are still around to enjoy it.
And it’s only fair, they say, that investors get some compensation for putting up their money.
“Funeral directors charge you money, ministers charge you money, doctors charge you money. There is no such thing as a free lunch. Everybody pays, even in death,” said Rob Haynie, client services director for the Medical Escrow Society, a viatical broker in San Francisco.
It is difficult to gauge just how lucrative the viatical industry is, since most death futures are privately held and many are so new that their first set of policies has yet to yield dividends.
Like any investment, there is risk: a medical cure could be found, investors might be sued, interest rates on borrowed money could eat away at eventual profits. And, of course, there’s the risk of simply being too bullish about how quickly a policyholder will die.
Four years ago, when Castro seemed not long for this world, he was paid $97,500 up front for his $150,000 policy. Despite having almost no white blood cells left, Castro is holding on, and the investors are still waiting for their return.
“It used to be that when someone was diagnosed with AIDS, they were gone in a year,” said Bob Banchich, national marketing director for Living Benefits, one of two viaticals owned by the publicly held CAPX Corp. “Now, it’s more of a crapshoot.”
But Living Benefits and other viaticals treat life expectancy as a science. Several doctors review medical records from potential clients and advise the companies on the likely date of death.
Living Benefits stays away from anyone with more than two years to live. Other companies will accept life expectancies of up to four years.
Of the 1,000 policies Living Benefits has bought since 1988, 20% have lived past the two-year cutoff. In only 1% of the cases have they been off by more than a year.
Possibly the biggest selling point for the industry is that the terminally ill themselves are among its biggest supporters. Whether they use the money for medicines and alternative therapies or splurge on a dream house or an exotic trip, few viators, as they’re called, have regrets. They say the cash infusion has taken their mind off death and disease.
“It has given me a new outlook on life,” Castro said. “Life is so much more comfortable, so much less stressful.”
Added Bill Freeman, executive director of the National Assn. of People with AIDS: “We’re very much in support. We think it’s a great idea.”
Many of the industry’s bad seeds, like viaticals who fail to pay sellers what they’ve been promised, have been driven out, said Nancy Ayoob, senior staff counsel for the California Department of Insurance.
The industry remains virtually wide open to buyers and sellers. Only five states regulate viaticals--California, Indiana, Kansas, New Mexico and New York. Other states have legislation pending.
That does not mean interested viators should leap in blindly, said retired financial planner David Petersen, who assisted in the first viatical settlement. They should explore other sources of revenue first, he said, such as borrowing money using the policy as collateral.
Viators, he said, get a “double haircut” on their money, first in the discount on the policy’s face value and later during taxes.
Another danger is that viators will plow through their money quickly but live on, penniless. Meanwhile, the original beneficiaries end up with nothing.
Nobue Janiga’s $30,000 February settlement is long gone, but her view of viaticals remains rosy.
Janiga, a cancer patient who was given six months to live in June, took her money, paid some bills and went to Reno, Nev., where the balance evaporated in a few days.
“Life insurance policies are such that you pay for them but you won’t see it (the money) until you die,” said Janiga, who has two other policies that she plans to keep intact. “I thought, well, why shouldn’t I see it while I’m still here?”
