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The Basics of Investing in Viatical Settlements: A Guide for Beginner Investors


August 19, 2020 ( Newswire) Viatical settlements aren't something you tend to hear about in day-to-day conversation. In fact, unless you're involved in the insurance or investment industries, or unless you've been involved in end-of-life planning for a loved one, it's probably a brand-new term to add to the list of terms you never really wanted to know. But viatical settlements are ways for people faced with a terminal illness to get the cash they need for last-ditch treatments or end-of-life care by cashing in their existing life insurance policy.

What ends up happening is a viatical settlement company buys out the life insurance policy for the policyholder, giving them a lump-sum of cash. The policyholder no longer has to pay premiums, which are taken on by the viatical settlement company. And when the original policyholder passes, the viatical settlement company becomes the sole beneficiary of the life insurance policy, thus making a return on the investment.

If you're an investor looking for a way to round out your holdings, you might want to look at putting money in companies like this. While you might think the subject matter is a bit morbid, it's a service that people who are facing insurmountable medical bills and care may be glad to partake in. And, as you know, where there's money involved, there's generally a need for investments. But, it's not an investment that's right for everyone, so here's what you need to know before sinking cash into a viatical settlement company.

Buyer Beware

The type of investment you're looking to get involved in may make or break your desire to invest in a viatical settlement company. According to Unusual Investments, "it is hard to do this type of investing directly so most people invest in viatical settlements through funds. The fact that you pay for the investment upfront and then and sit and wait for years before receiving a return attracts some American Greed types that steal or mismanage investor funds."

Among the other risks is the fact that the business plan is to buy insurance policies from older or terminally ill individuals who may have compromised health that would prevent them from legally entering into new contracts. This can raise the troubling issue of litigation. If the original life insurance policyholder experienced dementia when they entered the contract, or if another family member held medical power of attorney, family members might claim that the viatical settlement company took advantage of them. "If the insured person died right after the viatical settlement, they could accuse the investor of receiving an unconscionable windfall; some courts or state attorneys general could be sympathetic to their arguments," cautions Unusual Investments.

Thus, viatical settlement transactions are not a guarantee to earn you a relatively quick cash payment. They could raise moral or ethical questions that only you can determine if you want to be involved in.

Expert Advice

When it comes to investments, it's reasonable to expect a return. But be careful about buying into promises of large returns from viatical settlement companies. It's best to seek out advice from an expert in financial investments to determine if the fund or company you want to back is really worth your cash. Mark Wiseman, the senior adviser at Hillhouse Capital Group, a global investment manager and business executive, is the kind of person worth seeking out when you're wondering why you're not getting the returns you expected.

In addition to a business and financial background, Mark Wiseman also notes that looking for a professional with a legal background, like himself, can be incredibly helpful when assessing potential investments. "The overall ethos of that logical decision-making process that law school teaches you right from the first day has been incredibly valuable in my career." Experts like Wiseman can help you balance the legal and ethical questions that arise when buying other people's life insurance, while also checking to make sure it's a secure financial investment.

Predicting the Future

Just as a diagnosis of a terminal illness can prove unpredictable as far as late-stage life expectancy is concerned, future regulations, changes in state law, or rules covering a financial institution could have an effect on your ultimate financial returns. "The viatical settlements industry is facing increasing regulation from various states, FINRA, and others." says Unusual investments, "An investor that didn't provide all the necessary notices or didn't have proper licensing could face penalties or potential loss of ownership of the life policy." It's not clear how this industry will continue to grow or whether returns will drop off as more regulation falls into place.

FINRA, which is authorized by Congress to protect America's investors by making sure the broker-dealer industry operates fairly and honestly, oversees more than 624,000 brokers. "Many state insurance commissioners license the companies that buy viatical settlements to sell to investors and may have information about a specific company or viatical settlements in general. To find out who your state insurance regulator is, please visit the web site of the National Association of Insurance Commissioners. The Federal Trade Commission also has information for those who are considering selling their life insurance policies," warns

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