ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Monday, December 30, 1996 TAG: 9612300116
SECTION: NATIONAL/INTERNATIONAL PAGE: A-1 EDITION: METRO
SOURCE: Knight-Ridder/Tribune
A NEW YORK COUPLE plan to sell his life insurance policy after the new year, when a new federal law renders the money tax-free.
David and Helen are anxiously awaiting the new year.
The Amityville, N.Y., couple, who asked that their last name not be published, know it won't make David's degenerative Lou Gehrig's disease vanish or reduce Helen's responsibilities in caring for him. But the $192,000 they have coming to them will help keep many day-to-day worries at bay.
The couple plans to sell David's life insurance policy for 80 percent of its value. They will sell it to a so-called viatical company, which gives them cash and then waits for David, 61, to die. The company then claims the policy's full value: $240,000.
The reason the couple is waiting for the new year? A new federal law that makes some viatical settlements tax-free beginning Jan. 1 is expected to boost this controversial industry. Before, the settlements were taxed as regular income, a difference of thousands of dollars.
Helen, 58, is hopeful the money will arrive on Jan. 3, a day before their youngest son gets married.
``At this point, we know he's going to die and they know he's going to die,'' she said of her husband. ``We hope it won't be sooner. They are gambling on the fact it will be sooner rather than later.
``But I can't worry about that,'' she continued. ``Right now, my concern is him, keeping him comfortable. Everyone is worried about what's going to happen to me later. But I don't care about the later. My concern is now.''
There, in a nutshell, you have the viatical industry. Drawn from the Latin ``viaticum,'' which is a purse given to a traveler before a journey, backers of the industry say it helps give people living through difficult times a chance to pay off bills, buy medical supplies - maybe even have a good time in their final months of life.
The industry's critics say that it takes advantage of people during the most vulnerable periods in their lives, when they aren't able to make careful financial decisions - or that it encourages people to squander their money and leave their dependents helpless when they die.
And then there is the aspect of the macabre: Viatical companies make money only when their clients die.
Many of the companies act as brokers, selling the policies of the soon-to-die to investors.
By granting tax-free status to some viatical settlements - as part of the Kennedy-Kassebaum health law that was passed in August - the government has implicitly agreed with the supporters of viatical settlements.
``The purpose of life insurance is to help your beneficiaries when you no longer can,'' said John Banks, president of Viaticus, a subsidiary of the Chicago-based insurance giant CNA. ``Up till now, that meant you had to die, but now it means you can help them and still be living.''
Banks' company has bought some 2,000 policies over the last 18 months at a cost of over $200 million.
The new tax-free status is expected to give a fillip to the decade-old industry, which saw some very bad financial news in 1996.
The vast majority of the settlements so far involved patients with AIDS. The reason: The disease had a predictable course, was incurable, and afflicted whole communities like gay men, who could be easily reached through newsletters and well-known groups.
The bottom almost fell out of the viatical business in 1996 when drug companies announced they had discovered powerful drugs that could extend the lives of even terminally ill AIDS patients by months, if not years or more.
Many viatical companies, like San Francisco's Dignity Partners, stopped buying policies from AIDS patients. Others resigned themselves to huge losses, even bankruptcy, as patients who were on death's door began planning the rest of their lives. The industry realized it had to ``diversify'' into other areas of health to survive.
``We've been buying cancer and heart disease for a long time; it's just that we haven't been buying very many,'' said Alan Perper, Dignity's president. ``Because of the marketing aspects, it's been difficult to reach them.''
Besides cancer and heart diseases, the largest killers in America, viatical companies are also looking for patients with Lou Gehrig's and Alzheimer's diseases.
The average life expectancy of people who already have viatical settlements is about 20 months, and they receive about 70 percent of the full value of the policy, said Banks of Viaticus. Someone with 12 months to live might get as much as 85 percent, while someone with 5 years to live gets as little as 50 percent.
Experts offer several caveats if you are considering arranging for a viatical settlement.
The new law requires doctors to certify that their patients are seriously ill in order to qualify for the tax benefits. Companies have to inform patients of their options, including one called Accelerated Death Benefits. Under this plan, the life insurance company itself advances some money to the policy holder.
People living in 15 states need to sell their policies to state-licensed companies to get the tax-free benefit, according to William Kelley, executive director of the Viatical Association of America. The states are: California, Florida, Illinois, Indiana, Kansas, Minnesota, Louisiana, North Carolina, North Dakota, New York, Oregon, Texas, Vermont, Washington and Wisconsin.
Since the companies operate under a strict ``buyer beware'' principle, experts say ill people considering selling their policies ought to get professional legal and financial advice, get quotes from more than one company, and plan ahead of time what they will do with the money once they get it.
LENGTH: Long : 103 linesby CNB