Making A Killing

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Many viatical deals are marketed to seniors looking for a slightly better return on their retirement income. Ursula Linke, 60, of Silver Spring, Md., and her husband, tired of earning a relatively paltry 4% to 6% on their annuities, moved their entire life savings of $700,000 into viaticals sold by Liberte Capital Group of Toledo, Ohio, which claimed to pay 14% on a one-year maturity. "We wanted to have a sound investment, retire and have some peace and tranquillity," says Linke. After the first few quarterly payments arrived from the company, the money suddenly stopped coming. Liberte Capital blames its escrow agent for the problem. Now Linke and her fellow investors' money is frozen while a court-appointed receiver tries to resolve the dispute.

There are other pitfalls. In many cases, if the viator lives longer than expected, investors can end up having to pay premiums to maintain the policy. And unlike stocks or bonds, these are highly illiquid investments. That means that in the event of an emergency, there's no quick, easy way to get your money back.

Viators can be victims too. There are brokers who reap hefty, 18% commissions without getting the sellers--often ill, vulnerable people--the best deal available. One viator who went through Alpha Capital Group, a viatical provider that is fighting a cease-and-desist order from Washington State, ultimately received $5,400, or 6% of the policy's $90,000 face value.

Industry representatives support uniform regulation but hope officials don't go too far in their zeal to crack down. "It's a critical option that every terminally ill person should have," says Valerie Cooper, executive director of the NVA, who claims scam artists don't represent the bulk of law-abiding viatical providers, like Page & Associates and the Ardan Group. Gloria Wolk, chief consumer advocate for viaticals ), is worried that money for legitimate viatical settlements could disappear: "Fraud can destroy this industry and leave patients high and dry."

Competition may provide an alternative. To help slow the growing appeal of viaticals, more insurance companies are offering so-called accelerated death benefits, which, like viaticals, award a certain portion of the policies' face value to terminally ill patients before they die. That way, people can take it with them, and there's little chance that investors will be taken.