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Investing In Death? How People Are Cashing In On Life Settlements.

You sit down at breakfast, scan the newspaper, and conclude that there is virtually nothing profitable to invest in these days.  You announce to your spouse that you are considering investing in death.  Well, the conversation may not go exactly like that, but it may not be that far off.  Investors searching for something, anything, that will go up in value, are turning to viatical settlements

Most people are familiar with the availability of buy-outs on life insurance for those with a terminal illness, but the elderly in good health may also be able to sell their life insurance policy as well.  For a policy holder, selling their life insurance policy may be a much better deal than to cash it in with their insurance company. Depending on their age and medical condition, their life insurance policy could very well be worth a substantial sum.  The buyers (investors) in early payoffs (also called life settlements), are earning solid returns and don’t have to worry about the ups and downs of the stock market.

From Wikipedia:

From the perspective of the investor, purchasing a viatical settlement is similar to buying a zero coupon bond with an uncertain maturity date. The return depends on the seller's life expectancy and when he or she dies.

Viatical settlements grew in popularity in the United States in the late 1980s, when the AIDS epidemic peaked. The early victims of AIDS in the U.S. were largely gay men, many of whom were not particularly old. They often had no wives or children (the traditional dependents in a life insurance policy), but they had life insurance policies through employment or due to other investment activity. The dependents on the policies were often their parents who did not need the money. Viatical settlements offered a way to extract value from the policy while the policy holder was still alive.

Warnings Before Investing In A Viatical Settlement

ViaticalViatical settlements are sporadically regulated; only 26 states have any regulation of the industry at all.  In many states, anyone can hang out a shingle and operate as a viatical settlement broker.  As a result, this has become a hot bed for scam artists and an area of special concern for state regulators.

  • Consult with a reputable financial adviser.  If you don’t already have your own adviser, ask a friend for a referral.  
  • Contact your state insurance or regulatory agency to check whether a firm and its sales agents or brokers are licensed to sell viatical settlements (not all states require licensing).
  • Inquire about the firm's and broker's disciplinary histories.
  • Ask your state attorney general and Better Business Bureau about complaints, lawsuits or court rulings against the viatical company.
  • If you're promised a guaranteed return on your investment, be skeptical. Investment returns cannot be guaranteed since they are based on life expectancies.
  • Insist on getting the address of the life insurance company and the number of the policy in which you're investing. Take the time to verify that the policy and the insurance company behind it are for real.
  • Be sure you can hold on to the investment for the long run.  Viatical settlements are not liquid and are not easy to cash out if you need your money sooner than you originally expected.


Where To Find Opportunities To Invest

Most life insurance agents are familiar with the process and would be able to point you in the right direction.  The other option you have is to use a search engine such as Google.  If you decide to go the search engine route, keep in mind that you won’t find very many sites that are promoting the investment opportunity, but thousands offering to buy life insurance policies.  Most of the companies buying the policies are brokers and can also provide the opportunity for you to invest.  Search phrases to use would include: Viatical Settlements, Life Settlements, Senior Settlements, and Life Insurance Settlements. 

How Much Can An Investor Earn From A Viatical Settlement?

This is a great question and not one that I was able to find an easy answer to.  It appears that the target earning rate annually is about 8 to 10 percent.  How much you earn is directly tied to how long the insured lives.  This is where the investment gets to be a little creepy.  While it may be wonderful if a terminally ill person lives years longer than expected, that could be a disaster for the investor that owns the insurance policy.  It appears that this has become a very popular investment for large pension and retirement funds.  In the case of these institutional investors, they are buying thousands of life insurance policies and are well diversified.  This may represent the only sensible way to actually invest in viaticals.

Have you invested in a viatical settlement?  How did it work out for you?  Is this an investment you would consider making?  Use the comments section below and share your thoughts with our readers.

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James L. Paris
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