…And life settlements continue to beget trouble for our business. When the AIDS epidemic started to affect substantial numbers of Americans, there was an outpouring of sympathy and compassion for the economic plight the disease created for some. In particular, many had life insurance policies that would likely soon result in a death claim, but the insureds, being deprived of earnings, could not afford to maintain them. Moreover, their expenses rose because of the cost of medical care and related expenses.
The answer to many: a viatical arrangement for their policies. Under this plan, policies would be sold to an investor who, because of the poor health of the insured, would soon collect the death benefit. Because death in most instances was expected within six months, the sales price for such policies was quite high and much needed funds would flow to the insured. The arrangement prevented the loss of policy benefits to the insured's beneficiary while at the same time freed up funds for use today.
Viaticals were regarded as a humane way of dealing with an unfortunate economic problem. Many companies introduced an "accelerated benefits" provision at about the same time, thereby lessening the need for the viatical option.
But then the viatical arrangement for terminally ill people began to morph into "life settlements"–first on policies that had been in force for many years and then more recently on new policies purchased expressly for this market. Since their introduction it seems that almost every day brings a new use of this device and, in my view, they are brought to us by people who do not give a rap about our business and its future. The lure of a fast buck blinds them to the danger they pose to the future viability of our products.
The latest wrinkle of life settlements (or stranger-owned life insurance) to come to my attention is the "Five Star Program" offered by the Nebraska Alumni Association. According to its literature, the program is specifically for individuals who meet the following criteria:
–ages 75 to 85;
–in generally good health;
–a net worth of at least $1 million;
–are comfortable with their estate plan; and
–have a relationship with the Nebraska Alumni Association.
