A few days ago I received a telephone call from a person identifying himself as a representative of a “living benefits” company, which I assumed was one of the new nomenclatures for a viatical organization. Before he could get into his presentation, I interrupted by saying that I am fully retired and no long actively selling. But before I could hang up, he said, “Hey, youre just the kind of person we are looking for,” so I listened further.
The gist of his presentation was that because I had many years of selling, I no doubt had a large book of seasoned policies with significant cash values locked up within them. He went on to say that his organization could free up those values for present policyowners on a basis favorable to the policyowner and to me if I would cooperate. I thanked the gentleman for his call but told him I was opposed to the concept he was espousing and hung up.
Based upon ads that I see in a number of publications (some of which should not be running such ads), it is obvious that this is a growing marketing practice. I did not go into detail with the caller as to why I oppose viatical settlements–especially to healthy people–but I will try to do so in this column.
We often assail our lobbying organizations for their lack of proactive positions regarding government interference in our business. The cry usually takes the form of “why are we always reacting to government intrusion instead of being on the offensive?”
The fact is, however, that such criticism is exactly the opposite of reality. We are the creative, innovative force in the marketplace and government is the reactive force. We create split dollar–government reacts; we create a top-heavy pension plan–government reacts; we create single premium tax shelters–government reacts, and on and on.
Now, back to viaticals. A long time ago Congress determined that the trafficking in life insurance policies was not in the public interest and enacted the “transfer for value” rule to discourage the practice. For a long time, the adverse tax consequences of selling a policy under this rule effectively curbed the sale of policies except in certain exempted circumstances. But now, the issue is back and I have no doubt will eventually precipitate a reaction by government.
It is well to remember that in the 1980 tax act to eliminate tax shelters, the sole targeted shelter that survived was the tax-free build-up within life insurance policies and annuities. The reason it survived was because with life insurance:
Payment is made upon the death of a human being.
Economically, the life was more valuable while living.