KENMORE-BASED attorney Richard Rosso expressed an unfortunate position a number of Western New Yorkers find themselves in every year:
"What would you want to do if you only had a year to live? I'd want to travel. Wouldn't you?"
Although few people like to talk about it, death is an inevitable end to life. Many Americans find themselves tragically contracting a terminal illness, such as cancer or AIDS, at a young age.
Rosso and other attorneys experienced in elder law and estate planning help local residents plan their closing years and put their estates in order. This process now includes a relatively new financial planning vehicle, called a viatical settlement.
That allows terminally ill patients the option of selling their life insurance policies for thousands of dollars to pay for medical bills, travel, or to fulfill dreams.
"It's almost like a Make-a-Wish Foundation for adults," said David Svete, spokesman for LifeTime Capital Inc., a two-year-old viatical company in Miamisburg, Ohio.
The basics of viatical settlements are fairly simple.
The ill patient sells his or her policy to an investor for a reduced percentage of the death benefit, generally anywhere from 40 percent to 90 percent. When the terminally ill person ultimately dies, the
investor collects the policy's face value.
For example, if you sold a $100,000 life insurance policy for 80 percent, you would have $80,000 to help keep bills paid despite rising medical costs and try to enjoy your dying days. The investor would ultimately make a fat and easy return on investment by collecting the $100,000 after you die.
Viatical settlements are an option for life insurance policy holders, but they are not for everyone. The main purpose of life insurance is to provide financial stability and income replacement for dependents after the insured dies.
Any insured individual with dependents who may need the death benefit should think long and hard, and consult an attorney, before entering into a viatical settlement. Policy beneficiaries are typically asked to sign a form waiving any claim they might have in the policy before the transaction.
State law offers time
New York State law gives state residents 15 days after selling a life insurance policy to change their minds and reverse the transaction.
Both the state and federal governments have essentially granted their blessing to the viatical concept. Laws passed in recent years make the proceeds from viatical settlements exempt from both federal and New York state income taxes.
The viatical industry began about 10 years ago and AIDS patients have been the primary sellers of life insurance policies, according to William Kelley, executive director of the Viatical Association of America in Washington, D.C.
The industry has been transformed in the last two years because of pharmaceutical advancements for AIDS patients. About 90 percent of all policies sold in 1996 belonged to AIDS patients, but that figure dropped to 60 percent last year, Kelley said.
Ron Silverio, director of AIDS Community Services in Buffalo, said he sees fewer clients cashing in policies, because the entire outlook of HIV-infected people has changed with recent improvements in medication.
"My experience has been, for our clients who have used viatical settlements, it's been a very positive thing for them," Silverio said.
Viatical settlements are relatively unknown outside HIV-related communities, but they are growing in popularity, according to viatical companies.
"It's fairly new and it's growing in popularity as more and more people become aware of this. There are a lot of attorneys who aren't even aware of this unless they're estate attorneys," said Rosso, a board member of the Alzheimer's Disease & Related Disorders Association of Western New York.
Many illnesses apply
Other patients who might use viatical settlements include people with various forms of cancer, patients with end-stage heart and lung diseases.
Many terminally ill patients are no longer able to work and they live off Social Security or other disability insurance benefits. The meager monthly benefit checks leave some patients with barely enough to eat, much less live their dying days to the fullest.
Rosso cites the example of a single, 25-year-old man with terminal cancer who lives off about $600 in monthly benefit checks.
"He would like to enrich the final year of his life," Rosso said.
The man can sell a $20,000 life insurance policy for about $14,000 to $16,000 and use the money to travel.
The financial windfall will reduce his Social Security eligibility, but not if he lets his parents hold the money, Rosso said.
Money from viatical settlements can have a major impact on a patient who is already institutionalized. Even if that patient gives the proceeds to a relative, the patient loses his eligibility to have Medicaid pay for his residency until a waiting period of up to three years is met, Rosso said.
A person who wants to sell a policy can apply with a viatical brokerage firm. The company will shop the policy to several investors and try to get the best deal. There is no fee to sell a policy because the broker commission is paid by the investor.
How high a percentage of the face value a policy holder can get depends primarily on his or her medical condition. The closer you are to dying, the more your policy is worth to an investor.
Privacy signed away
The seller has to sign releases allowing the viatical broker to get copies of his or her medical records and insurance records.
After the policy has been sold, the viatical company tracks the patient's progress through frequent letters to his or her doctor.
"Certainly the seller doesn't want us calling them every 45 days to see if they've died yet," Svete said.
Svete does not consider the business of betting on a person's death to be morbid.
"We feel we're providing a valuable service for someone who needs cash. It helps people out who are dying and who are in desperate need of money," Svete said.
Some patients use proceeds from selling a policy to fund experimental treatments denied by their health insurance company. Other patients use the money to spend their last few months in the region's best treatment facility. A top-quality residential facility in Western New York costs about $6,000 a month, Rosso said.
Viatical companies are quick to advertise profiles of what they consider success stories.
For example, Benefits Advocates, a viatical broker in Nevada, sells itself with the story of a 50-year-old man with end-stage prostate cancer. The married father of two sold a $500,000 policy to enroll his son as a freshman at an Ivy League school. He lived long enough to see the kid make Dean's List his first year.
Viatical settlements are also growing as an estate planning tool for the wealthy, Svete said. A daughter who is beneficiary on her father's $1 million life insurance policy may come out ahead if he sells the policy for $750,000, and gives her the money, rather than ultimately paying estate taxes on the $1 million death benefit.