Case Study: Viatical Settlement

In researching viatical settlements, I was able to obtain a substantial amount of information using internet research, online archival research, and the University of Louisiana at Lafayette online library. A viatical settlement is a procedure that takes place between a Viator (policy owner who sells his or her life insurance policy) and an investor or a funding firm. The first documented viatical settlement happened in the early twenty century between Dr. Grisby and his patient John C. Burchard in 1911. Mr. Burchard was in need of a surgery and offered payment with his $100.00 life insurance policy. This payment would make Dr. Grisby sole beneficiary of this policy. On the date of Mr. Burchards death, Dr. Grisby went to collect the
death benefit from the death policy, but executor of his estate declined which then led to the first Supreme Court ruling regarding the legality of this payment. According to the Supreme Court, a life insurance was like any other asset and the owner of the policy had the legal right to sell it. Although viatical settlements have been around for a long time, decades had passed before the overwhelming need for viatical settlements arose in the 1980’s with the discovery of the deadly disease Aids.
During the beginning of the Aid’s epidemic, very little was known about the disease. This disease gave little chance for survival due to the fact that doctors did not know how to treat it. When traditional forms of treatment failed, the experimental drugs and procedures came into play. Health Insurance Company’s policy and procedures did not cover undocumented trial based treatments or procedures. These treatments were to be paid out of pocket by the individual and family members. With the extremely high cost of experimental drugs, the viatical industry grew. Currently all 50 states and Puerto Rico participate in the viatical settlements. With the growth of this industry came restrictions and regulations; therefore, not all states follow the
same guidelines.
According to the Life Insurance Settlement Association, “43 states and the territory of Puerto Rico regulate life settlements, affording 90% of the U.S population protection under comprehensive life settlement laws and regulations.” Terminally ill patients with twenty four months, or less than twenty four months, left to live can sell their life insurance policy to a third party for more than its cash value, but less than its net death benefit. The Viator would name the third party agency as beneficiary of the death policy for 50% to 80% of the value in cash, and that would be received in a lump sum. The third party buyer would then be responsible for the monthly payment of the benefit. The process can take up to 90 days, but once the application is accepted, it normally takes approximately two to three weeks to receive a lump sum. This settlement allows for financial freedom and provides quality of life until death. If the individual who wishes to receive a viatical settlement is believed to be terminally ill, that person will be able to receive all funds tax free under Federal rules. This stipulation only applies to an individual viator and can not to be considered a business, and must have a valid license from the respective
state that you reside in. The individual has the ability to pay for medical treatment, in home nursing care, outside facility care, and any other financial obligation that the individual sees fit. In the state of Louisiana, an individual must qualify with certain regulations and documentation before a viatical settlement can be considered. In 1995, Louisiana Insurance Commissioner Jim Brown implemented restrictions to protect Louisiana’s terminally ill from being misled by a viatical settlement provider or broker. Jim Brown states “it’s necessary to have rules because the terminal ill individuals are likely to be vulnerable”. The terminally ill can be of any adult age in the state of Louisiana. With these guidelines, viatical settlement providers and brokers must be licensed in the state before soliciting a viatical settlement. The provider or broker must inform the individual of other alternatives, such as life insurance policy loans and the possibility of tax consequences, and also the chance of losing government funding such as Medicaid. In order for an individual to start the application process, the individual must have written documentation from a medical practitioner that states that the individual is of sound mind and is under no pressure to enter into a viatical settlement. Insurance policy providers must be notified with-in twenty days of the individual’s decision to viatical the policy. It is also the responsibility of the individual to provide documentation of their terminal illness and date of diagnosis. This ensures that the policy was purchased before the diagnosis of the terminal illness. Individuals with chronic illnesses may also qualify for the settlement under certain conditions. In order to qualify under a chronic illness, the individual must have been diagnosed in the last twelve months, and have suffered the loss of certain functional capacity’s such as eating, using the restroom alone, bathing, transferring from bed to wheelchair, from wheelchair to bed, dressing and undressing without help, and requiring supervision for the safety of the patient for a period longer than 90 days. The review process for the viatical settlement application can take from sixty to ninety days to complete. With the rise of knowledge for terminal diseases such as Aids and Cancer, individuals were living longer but with shorter life spans. With these qualifying restrictions for the viatical settlement, individuals were not given the same benefits with their life insurance policies until 1980. In 1980 the Secondary Life Insurance Market was created. This policy allowed individuals with possibly longer life spans that were in need of long term medical necessity the same right to sell their policies. (Viatical.org p.1 2011-2018) While doing my research in regards to viatical settlements, I was pleased to learn about the benefits that came along with being able to utilize your own life insurance policy to help ease the financial burden due to terminal illness. I also was made aware of all the restrictions. Secondary Life insurance markets helped individuals to qualify for an asset that was not available to certain terminally ill individuals prior to the revamping of the government restrictions, when it came to the length of time a terminally ill individual had to live. The government lifted restrictions due to the new onset obstacles individuals were facing. In my research I never found any help for parents of terminally ill children. Parents often are subjected to a cut in monthly income due to the fact that one parent remains with the child to handle all of the medical necessities and care that is needed for their sick child. This can put a tremendous burden on the family. In my opinion, parents or grandparents should be allowed to sell their policies to fund financial obligations, treatments, nursing care, and monthly household bills, so that parents can focus on the more important decisions. I then used my survey options to find out if others would feel the same way and why. I surveyed ten people - six women, four men, all of different financial classes, two lower class, (according to Louisiana yearly income brackets) six middle class, and two upper class. These ten individuals were given a short summary of viatical settlements and restrictions, with three yes or no check boxes and one short answer. The third question was given to the surveyors after the survey of the first two questions were picked up. The surveyors were informed through a brief summary of how one is to qualify and what guidelines had to be met. Following the summary I asked first, do you think that the age listed in the guidelines is appropriate (must be of legal adult age)? Yes or no. I then asked, do you think that a spouse, parent, or grandparent should be allowed to sell their policy if they were not terminally ill? Yes or No. My third and final question was given to the surveyors immediately after picking up the first set of questions. The second survey had only one question and a scenario. It states, if your child, or grandchild was terminally ill and you or your daughter/son did not have the financial funds to keep up with house payments, medical treatments, experimental drugs, or in home care that were not covered my health insurance, would you want the legal right as a Parent or Grandparent with an asset that could provide you with a lump sum of cash in a short period of time, under certain circumstance, to be allowed to sell your policy Yes or No? And would that then change your selection for question #2 and why? After compiling the results of the survey, I found that questions one and two were 100% yes for all 10 surveyors. When I picked up the third and final question from all surveyors and found that once they were able to visualize this situation in their own life the result changed completely. The most common explanation to why they would change their mind on non-terminally ill parents/grandparents being able to sell their policy was, “It’s my policy and if my family needs it, and I am willing to sell it then I should be allowed to”. Before deciding to create a survey I called my local State Farm Agency to ask question about Viatical Settlements. I then realized that I was explaining what the viatical settlement was to the agent. One of the reasons this option may not be popular today is due to the fact that this option is often not placed in front of a family member when faced with financial issues due to the fact that people even insurance agents in some cases are not informed of this option when purchasing life insurance policies.