Viatical Troubles

Here are some previous problems that resulted in viatical fraud, and gave viaticals a bad name.

The industry emerged during the AIDS crisis of the 1980s, says David Sommer, associate professor of risk management and insurance at the University of Georgia's Terry College of Business, Athens.

"Suddenly, there was a large group of individuals with substantial life insurance, and they basically had a death sentence."

Many needed money to cover medical treatments or living expenses while they still were alive. In addition, many didn't have dependents who would need their policies' death benefits. It made sense to sell their policies and use the money to pay expenses.

Such transactions can be a humane option for those who need it. However, some unscrupulous people saw it as an easy way to make money.

One type of scam involves what's known as a "wet paper" transaction. Here, one person tries to convince another to purchase a life insurance policy, which then would immediately be sold to a viatical company. The term "wet paper" refers to the fact that the ink on the policy wouldn't have time to dry before it was sold.

These schemes can lead to another scam, known as "clean sheeting." Here, an individual purchases a life insurance policy without disclosing his or her true medical history. If the individual is in poorer health than the application indicates, the insurance company isn't able to make an informed decision about insuring him or her.

Clearly, transactions in which one party deceives another are unethical, and most likely, criminal. Today, most viatical firms won't purchase policies that are less than two years old. And, individuals who misrepresent their health when applying for life insurance can be prosecuted.

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Till next time, have a blessed day.