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The viatical fraud, how modern medicine changed everything (Part 2 of 11)
Monday December 10, 2007 12:00AM | Click here to visit original article.
Let's say that you are diagnosed with a terminal illness, such as serious cancer or AIDS, but you don't have sufficient money for treatment or even to keep yourself comfortable until you die. But let's say that you do have a life insurance policy, although in such a case you'll find that it does you pitiful little good until you do cash it in. So, you find somebody who will buy your insurance policy now at some reduced value, knowing that very shortly they will be able to cash it in. This gives you the money for treatments to hopefully slow the progress of your disease and also maybe keep you somewhat comfortable until you finally kick the bucket. From the investors' perspective, they have examined your medical records and prognosis and know with some certainty (depending on what you have, and how bad it is) that you are going to die within a couple of years. When you die, the investors know that your life insurance policy will now pay them as the named beneficiaries, so they will get the money that they paid you for the policy plus some. It is then just a simple matter of taking their total profit on the policy, and dividing it by how many years you actually live, and that is their return on their investment. So, let's say that you have a $300,000 life insurance policy, your oncologist tells you that at best you have two years to live, and so the investors pay you $200,000 for it and you name them the beneficiaries of the policy. If in fact you die in two years, the investors will have made a profit of $100,000 split over two years, or what amounts to a $50,000 per year return - although this will be a pre-tax profit and income taxes will be owed on it. Still, not bad for a $200,000 investment. This type of investment in the life insurance owned by a person who is probably soon going to die (with "soon" being somewhat arbitrarily set as being within three years) is known as a "viatical settlement". In the 1980s, there was created almost overnight a multi-billion industry in investing in the life insurance policies of AIDS patients, and later this industry spread to cover terminal cancer patients and in fact nearly any other disease where sure death was a soon-to-be-realized certainty. The fly in the ointment for investors is of course that you might outlive your physician's prognosis, meaning that when the Angel of Death came for you at the appointed time you told him to take a hike and don't come back until much later. This danger, from the investors' view, arises primarily from advances in medical technology. What might have been sure death a couple of years ago, might become defeatable or at least put into long term remission. Such was the case with many of the AIDS patients. As medical technology progressed, some of the patients start living longer while with others the AIDS went into remission altogether and they are still alive. Doubtless, there are few investors out there who have been waiting a couple of decades now to cash in on the life insurance policies that they long-ago bought, and there probably are not just a few cases where the AIDS victims have now outlived the investors in their policies. Eventually, the same thing started happening with cancer patients who also refused to cash in their chips at the appointed time, and investors were no longer willing to take anything but the very worst cases, where no advance in medical technology was going to make a difference. This selectivity started causing a lot of fraud in the viaticals market, as people who actually weren't very sick at all started portraying themselves at death's doorstop and repeatedly sold policies on their own lives. Then, some viatical fraudsters simply collected money from investors and never even invested in policies. This and similar fraud caused the viaticals market to be viewed as very sleazy (as if dealing in death wasn't sleazy enough in the first place), thus inviting state regulators in to further muck up the process with red tape, and driving would-be investors out. ---Source: http://www.quatloos.com/life_settlement-life_settlements.htm |
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