Viatical Settlement Industry

The industry began in the early 1990s with companies buying policies from people with AIDS and other terminal illnesses. But in the last two years, they have also begun to buy them from anyone 65 or older who has developed a health problem and has a policy of $250,000 or more.

" Companies that were writing viatical purchases found that the market dried up on them, so they took the concept. and went one step further," says Howard Saks, a life insurance expert in Los Angeles.

The person's health problem needn't be extreme. However, companies generally require that it reduce the person's life expectancy to 12 years or less.

It may be enough, for example, if the person is over 70 and has developed diabetes, which has shortened his or her life expectancy by three or four years, says John Mayer, an investment advisor in West Bloomfield, Mich.

Or it may be enough that they had a stroke a couple years ago or have high blood pressure, says Carole Fiedler, a life settlements broker in Sausalito, Calif.

If a person is terminally ill, the policy can be much smaller than $250,000, says Morris Heins, CEO of American Viatical, a life settlements broker in Indianapolis, Indiana. The average value of policies bought from terminally ill people is under $100,000, he says.

As a result of the industry's expansion, there is now over $108 billion of life insurance that people 65 and older in the U.S. can potentially sell, concludes a recent study by Conning & Company, a research company in Hartford, Conn.

Continued: What Viatical Settlement Companies Are Willing To Pay