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Florida Cracks Down on Sale of Viaticals

Wed, 04/26/2000 - 12:00am — Karen Stevenson
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Florida Treasurer Bill Nelson and Statewide Prosecutor Melanie Ann Hines have been probing the viatical business in Florida. Viatical providers and brokers buy life insurance policies, usually from the terminally ill, and resell them to investors who recoup their money plus some return when the insured dies. By selling a policy for a percentage of its face value, the insured can get cash now for medical, living or other expenses, by giving up a bigger payoff at death for one?s beneficiaries. The viatical business once focused on those dying from a terminal illness, now is targeting new clients - usually seniors with high payoffs - who may be willing to sell their life insurance policy to investors at a discount.

The business can be lucrative for dealers. Future First paid the insured as little as 12% of the face value for policies it bought, investigators said, and Life Benefits received a $48,510 commission for helping arrange the sale of just one policy for $122,746. Because of that, there is the opportunity for fraud on two levels. The insured may be victimized in the sale of the life insurance policy, and prospective investors (who are often elderly people themselves) may be defrauded when they purchase these policies as investments.

Nelson now is proposing to expand the state law governing viatical sales by the terminally ill to also cover the sale of life insurance policies of seniors and others. In an interim report issued Friday, the Statewide Grand Jury also made a series of recommendations for consideration by the Legislature, including increasing the penalties for viatical fraud from a misdemeanor to a felony.

Florida Treasurer Bill Nelson and Statewide Prosecutor Melanie Ann Hines have been probing the viatical business in Florida. Viatical providers and brokers buy life insurance policies, usually from the terminally ill, and resell them to investors who recoup their money plus some return when the insured dies. By selling a policy for a percentage of its face value, the insured can get cash now for medical, living or other expenses, by giving up a bigger payoff at death for one?s beneficiaries. The viatical business once focused on those dying from a terminal illness, now is targeting new clients - usually seniors with high payoffs - who may be willing to sell their life insurance policy to investors at a discount.

The business can be lucrative for dealers. Future First paid the insured as little as 12% of the face value for policies it bought, investigators said, and Life Benefits received a $48,510 commission for helping arrange the sale of just one policy for $122,746. Because of that, there is the opportunity for fraud on two levels. The insured may be victimized in the sale of the life insurance policy, and prospective investors (who are often elderly people themselves) may be defrauded when they purchase these policies as investments.

Nelson now is proposing to expand the state law governing viatical sales by the terminally ill to also cover the sale of life insurance policies of seniors and others. In an interim report issued Friday, the Statewide Grand Jury also made a series of recommendations for consideration by the Legislature, including increasing the penalties for viatical fraud from a misdemeanor to a felony.