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Identify your risks, increase your rate of return.
Monday March 03, 2008 12:00AM | Click here to visit original article.
The "senior settlement" has emerged recently as a hot new financial instrument, but law enforcement officials and some financial advisers caution investors against dishonest practices by unscrupulous salespeople and companies. Senior settlements, also called life settlements, are similar to viatical investments. In these arrangements, a person 65 or older who no longer needs an existing life insurance policy—typically worth $1 million or more in most transactions—sells it for less than its face value. The buyer/investor pays the premium on the policy and, like a viatical, the payoff comes when the insured person dies. In most cases, the seller of the policy has health problems but, unlike a viatical, not a terminal illness. According to the National Association of Insurance Commissioners, the licensing and disclosure laws that apply to viaticals do not govern senior settlements, leaving them unregulated in many states. "Anyone who invests in a senior settlement is throwing their money away," says Gloria Wolk, an expert on the industry. Because few states regulate senior settlements, she says, "you don't know if a policy is legitimate or whether the life expectancy (of the seller) is accurate." Nina Bottcher, spokeswoman for the Department of Insurance in Florida, says the viatical industry is giving way to senior settlements. While it is too soon to know whether many of these transactions will be tainted by fraud, she adds, "There's still cause for consumer caution. If someone stands to benefit from a death, you really want to think about that." Industry representatives say concerns about senior settlements are exaggerated. Doug Head, executive director of the Viatical and Life Settlement Association of America, Orlando, says there is less risk for fraud in a senior settlement than in a viatical deal because "you're relying on other factors such as actuarial tables for lifespan" rather than a seller's medical diagnosis, which could be inaccurate or untrue. "One thing is sure: you'll recover something," he says of senior settlements. "Your rate of return could be small if that person lives a long time but there will be a return, that you can be sure of." "If you die first," he says, "there's a return for your heirs." Joseph Belth, professor emeritus of insurance at Indiana University and publisher of the monthly newsletter "Insurance Forum," says senior settlements and viaticals are both "highly speculative investments." "Investors have been told they're extremely safe, and that is simply untrue. For seniors who invest it could be disastrous. They can lose a lot of money, if not everything," he adds. "They could also possibly make some money, but it's highly speculative." Source--- Watch Out for 'Senior Settlements http://www.aarp.org/bulletin/consumer/Articles/a2003-06-24-seniorsettlements.html |
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