Posted on: Thursday, September 25, 2003

Viaticals cited among top investment frauds

By Marshall Loeb
CBS MarketWatch

NEW YORK — The last thing a terminally ill person needs is to be involved in a financial scam. One such arrangement involves a life insurance policy purchased on a sick person at a discount sold by a broker or insurance agent.

This investment is called a viatical and is one of the top 10 investment scams, according to the North American Securities Administrators Association.

In some cases, the purchaser never even meets the ill person.

The sick person is supposed to be able to get some money for expenses, and the purchaser is to be paid the face value of the life insurance policy when the ailing person dies.

Many buyers have lost out on viaticals and here's why. The viatical settlement company may go out of business or brokers might have sold the same policy to many investors. Sometimes, no life insurance policy ever really exists.

These investments are marketed with the idea that the investor can help a frail, elderly person cover some bills. But because payouts are based on life expectancy, the investor benefits financially when the sick person dies sooner rather than later — not a good feeling for anyone. If the ill person's health improves, the buyer still must pay premiums on the policy.

To file a complaint about viaticals, find the contact information for your state securities regulator at the North American Securities Administrators Association Web site: www.nasaa.org.