Volume 2 Number 32
August 8, 2005

Consumer Services HelpLine Number 800-342-2762

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This year, Florida's Legislature put into place important consumer protections requiring full disclosure of the risks involved in viatical or life settlement transactions.

Disclosures include the identity of the party responsible for payment of premiums;
the amount of fees, commissions, deductions or other expenses, if any, that you are charged; certain risk factors associated with group policies; and what kind of policy you are being sold an interest in, such as whole life, term, universal or a group certificate.

A viatical or life settlement transaction is an agreement in which viatical settlement providers match those who want to sell their life insurance policies at a discount to investors willing to buy the rights to those policies.

Fraud in this industry has potentially cost investors up to $2 billion in losses since 1996. The average age of the investor defrauded is 70 years old and the average loss is $40,000. 

For investors, the new law makes investments in viatical settlements securities and subject to Florida’s securities laws.  This means access to company information and promises made to investors would have to be documented and approved by state regulators. In addition, determination of the investment's suitability for the investor would have to be considered, including the investor's financial and tax status, and the investor’s investment objectives. 

Although originally these agreements were limited to insured people who were deathly ill, any insured person - regardless of health or age - can viaticate their life insurance policies in Florida.  

Here are some tips to keep in mind if you are considering investing in viaticals:

  • Verify that the person offering or selling the policy is properly licensed in Florida.

  • Make sure you are told - in writing - who will pay the premiums, especially if the insured outlives his or her life expectancy.

  • Consider whether you can afford to keep the money tied up until the insured dies.

  • Remember: the life expectancy of the insured person is just an estimate. There is no guarantee the insured person will die when the estimated time runs out.

  • Be aware that a life expectancy is only an estimate, and that the person making this estimate is not registered with the Office of Insurance Regulation or the Department of Financial Services and is not required to be registered until July 1, 2006.

  • If the policy matures within the estimated life expectancy of the insured, your annual rate of return will be high; if the insured lives for a long time, your annual rate of return will be low. Make sure you understand the difference before you invest.

  • While most investments give you the rate of return on a yearly basis, viaticals give a "fixed" rate of return; they cannot give a yearly rate of return. Because you don't know how long the insured will live it may be many years before you see a return on your investment and you could be responsible for the payment of premiums until that time.

  • Do not let yourself be rushed into buying a viatical, or any investment. Before you spend your hard-earned dollars, do research on whether viaticals are appropriate for you.

  • Consider whether you are cashing in other investments that might be more appropriate for you in order to buy the viatical, and whether you can afford to pay surrender charges to cash in other investments.

  • Placing a viatical in an IRA raises complicated legal questions. Make sure you consult a licensed professional attorney or accountant. Protect your privacy. A large number of people may be involved in a viatical transaction requiring access to personal information. Know who is involved and check them out thoroughly.

    If you are selling your life insurance policy, you should consider the following: 

  • Check with your insurance company or agent to find out if the policy qualifies, for an accelerated death benefit. An accelerated death benefit pays part of a policy's death benefit, minus any outstanding policy loan, before the death of the insured. This is useful for policyholders who want to use only a portion of the death benefit and leave the balance to their heirs.

  •  Shop around and contact several licensed viatical settlement providers or licensed viatical settlement brokers. One provider might pay 35 percent of the face value of a policy, while another might pay 45 percent for the same policy. A viatical settlement broker has fiduciary responsibilities to you, the viator.
  • Find out the name of the escrow agent involved in the transaction and check with the department to see whether any complaints have been lodged against this individual.
  • Again, protect your privacy. A large number of people may be involved in a viatical transaction requiring access to personal information. Know who is involved, and check them out thoroughly.

 To verify licensure of all parties involved whether you are buying or selling, visit www.MyFloridaCFO.com, or call our toll-free HelpLine at (800) 342-2762. 

The legislation passed this year will enable us to proactively better protect investors and aggressively pursue fraudulent practices in this industry. But as an investor, your best bet is to verify before you buy.

Night falls over the 1908 Lafayette County courthouse in Mayo, the county seat.  The two-story frame building across the street was an earlier courthouse. The county was formed in 1856 and named after the French marquis who assisted the colonies during the Revolutionary War.