A viatical settlement, also referred to as a life settlement, is the sale of a life insurance policy by the policy owner before the policy matures. Such a sale, at a price discounted from the face amount of the policy but usually in excess of the premiums paid or current cash surrender value, provides the seller an immediate cash settlement. Generally, viatical settlements involve insured individuals with a shorter life expectancy. This is a practical way to pay extremely high health insurance premiums that severely ill people with short life expectancy face. A life settlement is a similar transaction but involves insureds with longer life expectancies. From the viewpoint 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. The viatical settlements grew in popularity in the United States in the late 1980s, when the AIDS epidemic peaked. Viatical settlements offered a way to extract value from the policy while the policyholder was still alive. At that time, the AIDS mortality rate was very high, and life expectancy after diagnosis was typically short. The investors were reasonably sure that they would collect in a relatively short time. This combination of events caused an increase in viatical settlements as both investors and viators saw an opportunity for mutual benefit. Viatical settlements developed a bad reputation in the investing community. The companies that purchased them from policy holders typically resold them to individual investors. Salespeople were paid large commissions to push the settlements, which were not conventional investments and which were misunderstood by many investors. The government regulatory agencies had little experience and few regulations dealing with viatical settlements, and the industry attracted some unscrupulous dealers.  

Attorney Lars Soreide, a Florida based securities lawyer, said recently, “It is of utmost importance that you do your research before investing in viaticals.  They can be very risky investments and end up costing you, the investor, a lot of money.”  Soreide Law Group represents clients who are victims of investment fraud.  

One of the most infamous viaticals cases involved the Mutual Benefits company headed by Peter Lombardi in Florida which had over 28,000 investors and had focused in the paying HIV clients. In 2003, the Securities Exchange Commission closed the firm saying it was involved in a $1 billion Ponzi scheme. Lombardi is now serving a 20-year prison sentence. Often viaticals can end up costing investors a lot of money. The North American Securities Administrators Association (NASAA) calls viaticals one of the top ten investment scams. According to Joseph Borg, former president of the North NASAA and director of the Alabama Securities Commission. Securities regulators are “concerned that the inherent risk of viatical investments – gambling on when someone will die – aren’t being adequately disclosed, and second, many investors have been outright defrauded by some viatical companies or their sales agents.”

These are a few of the ways people can lose money: ·     Improved medical care, the ill or older person may live longer than expected. As the new owner of the policy, you have to pay the premiums to keep the policy in force. You tie up your money longer and your profit declines the longer the person lives. ·     Occasionally, the insured person is not ill at all, so the investor will need to make insurance payments — sometimes for years — or the investment is lost. ·     The insured person may have purchased the life insurance through fraud and the insurance company will refuse to pay the settlement. ·     The insurance company or viatical settlement company may go out of business — along with your invested money. ·     Some brokers have sold the same policy to multiple investors. ·     The insured’s heirs may challenge changes made to the policy.  

Protect Yourself It is important to learn all you can about viaticals before you invest. Attorney Lars Soreide, reminds clients investing in viaticals, ”Before investing in viaticals make sure you ask plenty of questions, such as: Is there a ‘contestability clause?’ Who is responsible for making the premium payment? Can it be contested by the family? Does the viator actually exist? Have they sold this policy to more than one party? Did you check the guarantees? Is it a term policy that could expire after a certain point? These are just a few of the questions an investor needs to ask.” If you feel you have been defrauded in a viatical investment, contact Soreide Law Group and speak to an attorney. Failure to research thoroughly the investment often results in financial disaster. 

More questions to ask include: ·     Is this investment right for you based on age, financial status and other personal circumstances?  If the viator lives longer than expected, your investment dollars will be tied up for a longer period of time than expected, and you will be paying the policy premiums. ·     Is the viatical investment considered to be securities in your state? Check with your state securities regulator to see if it should be–and is registered, and if the broker is licensed. In some states, viaticals are regulated as insurance products; in other states they are not regulated at all. ·     What control, if any, do you retain over your investment? ·     What financial information will the provider disclose about its history?  If the viatical settlement provider and/or the insurance company goes bankrupt, you could lose or tie up your investment dollars indefinitely.  

If you feel you’ve been defrauded by a viatical sale or settlement, contact Soreide Law Group.  For more information about our services please visit:  www.stockmarketlawsuit.com or call and speak to an attorney at:  (888) 760-6552.

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