                        AIDS NEWS SERVICE
                   Michael Howe, MSLS, Editor
                     AIDS Information Center
                VA Medical Center, San Francisco
                     (415) 221-4810 ext 3305
                        Jaunary 19, 1996

                      Viatical Settlements:
           A Guide for People with Terminal Illnesses

                    Federal Trade Commission
            6th Street and Pennsylvania Avenue, N.W.
                     Washington, D.C.  20580

     If you have a terminal illness--or if you are caring for
someone who is terminally ill--chances are you're giving a great
deal of thought to time and money. You may be thinking about life
insurance, too. It's in that context that you may hear the phrases
accelerated benefits and viatical settlements.
     Accelerated benefits sometimes are called "living benefits."
They are the proceeds of life insurance policies that are paid by
the insurer to policyholders before they die. Occasionally, these
benefits are included in policies when they are sold, but usually,
they are offered as riders or attachments to new or existing
policies.
     Viatical settlements involve the sale of a life insurance
policy. If you have a terminal illness, you may consider selling
your policy to a viatical settlement company for a lump sum cash
payment. In a viatical settlement transaction, people with terminal
illnesses assign their life insurance policies to viatical
settlement companies in exchange for a percentage of the policy's
face value. The viatical settlement company, in turn, may sell the
policy to a third-party investor. The viatical settlement company
or the investor becomes the beneficiary to the policy, pays the
premiums, and collects the face value of the policy after the
original policyholder dies.
     The fact is that any decisions affecting life insurance
benefits can have a profound financial and emotional impact on
dependents, friends, and care-givers. Before you make any major
changes regarding your policy, talk to someone whose advice and
expertise you can count on--a lawyer, an accountant, or a good
friend.

                    Investigate Your Options

     Options exist for people with terminal illnesses when
financial needs are critical. For example, you may consider a loan
from the original beneficiary or your life insurance policy,
accelerated benefits on your life insurance policy, or a viatical
settlement.
     Many life insurance policies in force nationwide now include
an accelerated benefits provision. Companies offer anywhere from
25 to 100 percent of the death benefit as early payment, but
policyholders can collect these payments only under very specific
circumstances. The amount and the method of payment may vary with
the policy.
     Indeed, if you own a life insurance policy, call your
insurance agent or company to find out about your alternatives. Ask
whether your life insurance policy allows for accelerated benefits
or loans, and how much it will cost. Some insurers add accelerated
benefits to life insurance policies for an additional premium,
usually computed as a percentage of the base premium. Others offer
the benefits at no extra premium, but charge the policyholder for
the option if and when it is used. In most cases, the insurance
company will reduce the benefits advanced to the policyholder
before death to compensate for the interest it will lose on its
early payout. There also may be a service charge.
     In addition, you may consider selling your life insurance
policy to a viatical settlement company, a private enterprise that
offers a terminally ill person a percentage of the policy's face
value. It is not considered an insurance company.
     The viatical settlement company becomes the sole beneficiary
of the policy in consideration for delivering a cash payment to the
policyholder and paying the premiums. When the policyholder dies,
the viatical settlement company collects the face value of the
policy.
     Viatical settlements are complex legal and financial
transactions. They require time and attention from physicians, life
insurance companies, lawyers, and accountants or financial
planners. The entire transfer process can take up to four months
to complete.

              Eligibility for Viatical Settlements

     Each viatical settlement company sets its own rules for
determining which life insurance policies it will buy. For example,
viatical settlement companies may want to know that:

     o    you've owned your policy for at least two years;

     o    your policy has a reasonably large face value;

     o    you have a waiver from current or potential
          beneficiaries; and

     o    you are terminally ill. Usually, this means that death
          is expected to occur within two years.

     Investors may insist that your policy be from a company that
is large or will-known and one that will be able to pay the death
benefit. If your life insurance policy was provided by your
employer, investors also will want to know if it can be converted
into an individual policy or otherwise be guaranteed to remain in
force before it can be assigned. Finally, investors probably will
ask you to release all your medical records to them.

                     Financial Implications

     If you sell your policy to a viatical settlement company, you
may owe federal capital gains tax on the difference between the
payment you receive and the amount you've paid in premiums. You
also may owe state tax, although several states, including
California and New York, have made these settlements tax-free.
     Collecting accelerated benefits or making a viatical
settlement also may affect your eligibility for public assistance
programs based on financial need, such as Medicaid. The federal
government does not require policyholders either to choose
accelerated benefits or cash in their policies before qualifying
for Medicaid benefits. But once the policyholder cashes in the
policy and receives a payment, the money may be counted as income
for Medicaid purposes and may affect eligibility.
     The Congress is currently considering a proposal to change the
tax code so that accelerated benefits and viatical settlements
would be excluded from taxes. Your lawyer or accountant will be
able to tell you the tax status of these payments. Up to now,
payments of accelerated benefits from an insurance company have
been tax-exempt in some states. Because viatical settlement
companies are not considered insurance companies, viatical payments
generally have not been exempt from taxes in most states.

                    Guidelines for Consumers

     The daily physical and emotional demands of a terminal illness
can be over-whelming, and financial burdens can seem
insurmountable. If you are considering making a viatical settlement
on your life insurance policy--or if you are helping someone with
this decision--these consumer guidelines should help you avoid
costly mistakes and make the choice that's right.

     o    Contact two or three viatical settlement companies to
          make sure offers are competitive, and be aware of
          prevailing discount rates. A viatical settlement company
          may pay 60 percent of the face value of a policy to a
          person whose life expectancy is two years or less, and
          80 percent to someone who life expectancy is six months
          or less.

     o    Check with your state insurance department to see if
          viatical settlement companies or brokers must be
          licensed. If so, check the status of the companies with
          whom you are considering doing business.

     o    Don't fall for high pressure tactics. You don't have to
          accept an offer, and you can change your mind. Some
          states require a 15-day cooling off period before any
          viatical settlement transaction is complete.

     o    Verify that the investor or the company has the money for
          your payout readily available. Large companies may have
          cash on hand; smaller ones may have uneven cash flows or
          may be "shopping" the policy to third parties.

     o    Ask the company to set up an escrow account with a
          reputable financial institution at the beginning of the
          transfer so you can be sure the funds are available to
          cover the offer.

     o    Insist on a timely payment. No more than a few months
          should elapse from the initial contact with the company
          to closing. Check with your state attorney general's
          office or department of insurance to see if there are
          complaints against the company before you do business.

     o    Ask the company about possible tax consequences and
          implications for public assistance benefits. Some states
          require viatical settlement companies to make these
          disclosures and tell you about other options that may be
          available from your life insurance company.

     o    Contact a lawyer to check on the possible probate and
          estate considerations. If you make a viatical settlement,
          there will be no life insurance benefits for the person
          you originally designated as beneficiary.

                      For More Information

     Any decision that affects your life insurance benefits can
affect the people who care for and about you. Before you make a
decision, talk to someone you trust--a lawyer, an accountant, or
a good friend. You also may want to contact the following
organizations for more information.

     Affording Care
     429 E. 52nd Street, Unit 4-G
     New York City, NY 10022-6431

     American Council of Life Insurance
     1001 Pennsylvania Avenue, N.W.
     Washington, D.C. 20004-2599

     National Association of Insurance Commissioners
     444 North Capitol Street, N.W.
     Washington, D.C. 20001

     National Association of People With AIDS
     1413 K Street, N.W.
     Washington, D.C. 20005

     National Viatical Association
     7910 Woodmont Avenue, Suite 1430
     Bethesda, MD 20814

     North American Securities Administrators Association
     555 New Jersey Avenue, N.W.
     Washington, D.C. 20001

     Viatical Association of America
     1200 19th Street, N.W., Suite 300
     Washington, D.C. 20036

     Your State Attorney General
     Office of Consumer Protection
     Your State Capital

     Your State Insurance Commissioner
     Department of Insurance
     Your State Capital


                  The Federal Trade Commission (FTC)

     FTC is an independent agency that seeks to protect the public
against unfair, deceptive, and fraudulent advertising and marketing
practices through law enforcement and education efforts. For a
complete list of free FTC publications write:

Best Sellers, Public Reference, Federal Trade Commission,
Washington, D.C. 20580, (202) 326-2222. For TDD, call (202) 326-
2502. Or use the internet for on-line access to FTC consumer and
business publications. The FTC ConsumerLine is located on the
internet at CONSUMER.FTC.GOV or through the World Wide Web at
http://www.ftc.gov
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