The Federal Trade Commission has issued a special brochure to advise terminally ill people who are considering selling their life insurance policies in order to get funds to pay their bills.
Arrangements to accelerate financial benefits from life insurance policies, whether they are called "living benefits" or "viatical arrangements," have legal, financial and tax consequences that are complicated, and they should be reviewed in advance by professional advisors, according to the FTC.
"The emotional and psychological burdens of a terminal illness are overwhelming. When you add the challenge of dealing with costly medical treatments, consumers and their families may be tempted to act quickly to get funds to settle short-term problems," said Jodie Bernstein, Director of the FTC's Bureau of Consumer Protection. "But viatical arrangements are complicated, and must be approached cautiously and with great care," she said.
The FTC brochure states that terminally-ill people have a number of alternatives for translating the face value of their life insurance policies into cash, including a loan from the original beneficiary of a life insurance policy, accelerated benefits on a life insurance policy, or a viatical settlement. In a viatical settlement, the consumer assigns his or her life insurance policy to a viatical settlement company in exchange for a lump sum payment equal to a percentage of the policy's face value. The viatical settlement company then becomes the beneficiary to the policy, pays the premiums and collects the face value of the policy after the original policy- holder dies.
The FTC brochure cautions that certain choices may have state or federal tax implications and that collecting benefits in advance may affect eligibility for public assistance programs.
The brochure specifically advises consumers contemplating viatical or other accelerated benefit programs, before making any final decisions, to:
- contact several viatical companies to be sure they're getting the best value;
- check with state insurance regulators to ensure that any viatical company meets licensing requirements;
- resist high pressure sales tactics;
- verify that the company has the payout money on hand, and is not "shopping" the policy to a third party;
- ask about the company's policy for protecting the consumer's privacy;
- check the tax consequences and implications for public assistance benefits; and
- check with a lawyer about probate and estate considerations.
The brochure also suggests that consumers contact the following, among other, organizations for more information:
429 East 52nd Street, Unit 4-G
New York, New York 10022-6431
American Council of Life Insurance
1001 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2599
National Association of Insurance Commissioners
444 North Capitol Street, N.W.
Washington, D.C. 20001
National Association of People with AIDS
1413 K Street, N.W.
Washington, D.C. 20005
Free copies of the brochure, "Viatical Settlements: A Guide for People with Terminal Illnesses," are available from the FTC's Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202- 326-2710. FTC news releases and other materials also are available on the Internet at the FTC's World Wide Web site at: http://www.ftc.gov