So, what ever happened to traditional viatical deals, the ones that involved the purchase of life insurance policies from working-age patients with terminal illnesses?
Although the market for policies owned by older insureds now overshadows the viatical market, viatical deals could account for as much as 10% of the life insurance policy value purchased in 2004, according to Doug Head, executive director of the Viatical and Life Settlement Association of America, Orlando.
But no one seems to be tracking viatical sales, and Head says his estimate of the size of the viatical market is very rough.
The life settlement industry’s trade group, the Viatical and Life Settlement Association of America, Orlando, Fla., did not add the term “life settlement” to its name until 2000.
But the word “viatical” now seems to be losing ground. Head says the group keeps the word in its name mainly as a reminder of what the industry once meant to America.
Viaticals first came to the fore in 1988, when formerly healthy and relatively young AIDS sufferers began trying to sell their life insurance policies for much needed cash. Around the same time, participants in the industry began to use the term “viatical,” which comes from a Latin word, “viaticum,” which means “provisions for a journey.”
In the early days, patients sold policies with face amounts as low as $25,000. Some “policies” really were certificates for employer-sponsored group life coverage. But the viatical business still could be profitable, because the “viators,” or policy sellers, were expected to live only 2 more years.
“There was not that much regulation at the time, so the kind of costs we have today were not there,” Head says.
He recalls public sentiment about viaticals going through wild swings.
“At first they thought we were taking advantage of suffering AIDS victims,” Head says. “And then, when it was disclosed that some of these sufferers were skirting the underwriting policies to obtain policies in order to viaticate them, then the terminally ill turned out to be the bad guys.”
When pharmaceutical companies introduced protease inhibitor drugs in 1996, the equation changed. Actuaries expected patients receiving high-quality care to live about 5 years. The patients’ increased life expectancies eliminated the profits on viatication of policies with small face values.
Today, because of compliance costs and patients’ longer expectancies, the minimum face value for a marketable policy is more than $250,000, Head says.
“One of the things I regret is that folks with smaller face amounts on their policies no longer have this [avenue] open to them,” Head says.
1988==Investors set up formal viatical programs to buy life policies from people with AIDS.
1990s==States develop laws and regulations to protect terminally ill policyholders.
1996==New drugs extend the life expectancy of people with AIDS.
2000==The Viatical Association of America adds the term “life settlement” to its name.
2005==Viatical deals may make up only about 10% of U.S. life settlement volume.