Creators Syndicate

FIGHT BACK!  BY DAVID HOROWITZ 

Cashing Out Life Insurance  

        People suffering terminal illnesses are often at the end  of
their financial resources. So they turn to the one sizable  asset they
have left -- their life insurance. If they can tap  the cash value of
their policies, they can settle their debts  and make their remaining
time more comfortable. 
        The process is called a viatical settlement. The policy  holder
names an investor as beneficiary of the policy. In  return, the
investor puts up a portion of the face value of  the policy -- in cash.
The investor then collects the entire  insurance benefit when the
policy-holder dies. 
        All types of life insurance can be brokered -- term  policies,
whole life, universal and group coverage. Brokers  bring investors and
sellers together and handle the  paperwork. The whole process usually
takes six to eight  weeks.  
        How much the policy-holder receives may vary from 50  percent
to 80 percent, depending on the size of the policy  and the
policy-holder's life expectancy. The greater the face  value of the
policy, the larger the percentage the policy- holder receives in cash.
On the other hand, the longer the  person's life expectancy, the longer
the investor must wait  to recoup those funds, which reduces the cash
payout to the  seller. 
        Basic guidelines for a viatical settlement are that the  seller
must have two years or less to live, and the policy  must have been in
force for at least two years. That's  supposed to keep people from
buying huge policies just so  they can turn them around for cash. 
        There are no set formulas for determining settlement  values.
Different brokers may offer different cash payouts on  the same policy.
People wanting to sell their coverage should  get competing bids on
their policies. 
        By its very nature, this whole business is sensitive and 
somewhat controversial. One state insurance commissioner  described it
recently as "profiteering on the terminally ill"  and "contrary to the
public interest." There are serious  concerns that brokers are often
unlicensed and unregulated  and may not disclose the full consequences
of a viatical  settlement to the sellers -- income taxes, for example. 
        Unlike a loan or life insurance benefit, the proceeds  from
selling a policy are considered taxable income. But  there are tax-free
alternatives to selling a policy outright.  Most insurance companies
allow policy-holders to borrow  against the value of their policies
without signing away all  their benefits. Such loans usually require
annual interest  payments. But they are not taxable and are paid off
when the  person dies. 
        Many carriers also offer special accelerated benefits  payments
to terminally ill policy-holders. Each carrier has  different
guidelines for this service. Typically, it is  available only to those
with less than a year to live. But  again, these cash payments are not
considered taxable income. 
        If you are thinking about a viatical settlement,  consider the
alternatives. Talk to your own insurance agent.  Find out what kind of
settlement your carrier offers to  terminally ill policy-holders. Get
at least three competing  bids from viatical settlement brokers. And if
your state  licenses settlement brokers, be sure you deal only with a 
licensed company. 
        If you have any questions or comments, please write to  David
Horowitz in the Consumer Forum+ (go FIGHTBACK). COPYRIGHT 1994 CREATORS
SYNDICATE, INC.