2 Look Before You Leap
5 An Introduction to Viatical and Life Settlements
6 The Parties Involved
8 How the Process Works
10 Accelerated Death Benefits
12 Information for Potential Investors in Viatical
16 Tips for Persons Thinking of Selling Their Life
18 Additional Help
Look Before You Leap
Extensive information regarding the investment
opportunity must be disclosed to investors. It should
include but not be limited to: all the material risks
associated with the investment; a brief description of
Into Viatical and Life Settlement Investments the business background of the executive personnel and
promoters of the issuer of the viatical investments; a
description of the business of the issuer; capitalization
of the issuer; amount and nature of funded debt of the
issuer; use of proceeds from the offering; compensation
to promoters; executive remuneration; pending material
litigation involving the issuer; underwriters’ commissions
and discounts; any adverse actions taken by any state,
In 2005, Florida’s
federal or self-regulatory agency, if material, against
Legislature put into place
the issuer, underwriter, promoter, officer or director, or
protections requiring full in which action they were named; and information,
disclosure of the risks where appropriate, concerning the financial condition of
involved in viatical or life the issuer.
settlement transactions. A
viatical or life settlement Fraud in this industry has potentially cost investors up
transaction is an agreement to $2 billion in losses since 1996. The average age of
in which viatical settlement the investor defrauded is 70 years and the average loss
providers, securities is $40,000.
issuersand securities dealers
match those who want to Effective July 1, 2005, there is no longer a “viatical
sell their life insurance
settlement sales agent” as formerly defined in statute. The
policies at a discount to
new law defines certain investments in viatical settlements
investors willing to buy the
rights to those policies. as securities and subjects them to Florida’s securities laws.
Although these agreements This means investors must be given full and fair disclosure
were originally limited of all material facts surrounding the transaction.
to insured people who
were terminally ill, any In addition, determination of the investment’s suitability
insured person — regardless for the investor must be considered by registered dealers
of health or age — can and their agents, including the investor’s financial and tax
viaticate their life insurance status, investment objectives, and other relevant factors.
policy in Florida.
Life agents are no longer authorized, by virtue of their life
licenses, to sell such securities. Selling viatical settlement
investments, unless performed pursuant to an exclusion or
exemption, now requires a license from, and is regulated
by, the Office of Financial Regulation.
2 Viatical and Life Settlements Viatical and Life Settlements 3
An Introduction to Viatical
and Life Settlements
A viatical settlement or life settlement investment is
a transaction in which a life insurance policyholder
sells his policy before the death of the insured. Often,
the insured has been diagnosed as terminally ill, and
wishes to use the money to pay for living and medical
expenses. Viatical settlements may also involve healthy
policyholders who do not have a terminal illness.
When the viatical settlement transaction is complete,
Sales agents, who on July 1, 2005, had contracts in process, the policy owner (also known as the viator) gives up
had a grace period of up to thirty days to complete them, ownership and control of the policy to another party
if certain conditions existed. New business, however, (on (typically the viatical settlement provider). The viator
and after July 1, 2005) is subject to securities laws set sells the insurance policy to the viatical settlement
forth in Chapter 517, Florida Statutes. provider, at a discount; which means the viator receives
less than the face value of the policy.
Agents who sell viatical settlements should be aware that
the Florida Securities and Investor Protection Act makes Typically, interests in these viaticated life insurance
clear that it is unlawful for any person in the solicitation policies take the form of securities and are sold to
or sale of a viatical settlement purchase agreement to investors by securities dealers. Multiple investors
obtain money or property by means of an untrue statement may invest in a single policy or the investors may
of a material fact, to make misleading statements given own an interest in an underlying pool of viaticated
the circumstances under which they were made, or to policies. Depending on the way the security is
engage in any transaction, practice or course of business structured, the new owner, or the securities issuer,
which operates or would operate as a fraud or deceit upon may take on the responsibility to pay the premiums
a person. To do so could subject the individual agent to on the insurance policy.
felony charges of the third or first degree, depending upon
the face amount of the policy sold. When the insured dies, the person who has purchased
an interest in the insurance policy collects a portion of
the death benefits either directly from the insurance
company, or from the issuer of the securities. From
an investor’s perspective, a viatical settlement is an
investment in the timely death of the insured person.
4 Viatical and Life Settlements Viatical and Life Settlements 5
The Parties Involved
To better understand how a Insured — The individual whose Viatical Settlement Broker — A person or firm licensed by the
viatical settlement works, life is insured by an insurance Florida Department of Financial Services that offers or attempts
it helps to know who is policy. This individual may or to negotiate a viatical settlement between a policyholder residing
involved in this type of may not be the policyholder. in Florida and a viatical settlement provider. This person or firm
financial transaction. is responsible to, and should only represent the interests of, the
Issuer — Any person or legal policyholder. A licensed life insurance agent may also negotiate
Beneficiary — The person(s) entity who proposes to issue, has such settlements without obtaining a separate viatical settlement
designated to receive the issued, or shall issue securities broker’s license in Florida. Such an agent must hold a proper
death benefit from a life such as interests in a viaticated appointment from a viatical settlement provider.
insurance policy upon the life insurance policy. Any person
death of the insured. In a who promotes the viatical Viatical Settlement Contract — A written agreement between a
viatical settlement, one investment may also be deemed viatical settlement provider and a policyholder that establishes
or more investors may an issuer. terms under which the provider will pay the policyholder for
receive this designation on the policy.
an “irrevocable” basis. This Investor or Purchaser — A person
means no one can change it who buys into one or more Viatical Settlement Provider — A company or individual licensed
without written permission viatical investments. by the Florida Department of Financial Services that purchases
from the beneficiaries. ownership and beneficiary rights from the policyholder. The
Policyholder — The individual provider may assign beneficiary rights to one or more investors.
Dealer — The company who owns the policy and has As of the printing date of this publication, only a handful of
offering, buying, selling or the legal right to name the companies held viatical settlement provider licenses in Florida.
otherwise dealing or trading beneficiary or sell control and
in securities issued by another ownership of Viaticate — The process by which a person sells a life insurance
person. A dealer includes any the policy. policy to a third party for less than its face value.
issuer who, through persons
directly compensated or Viatical Settlement — The sale Viator — The owner or policyholder of a life insurance policy, or
controlled by the issuer, of a life insurance policy to a a certificate holder under a group policy, who has entered into a
engages in the business of licensed viatical settlement contract to sell his or her policy.
offering or selling securities, provider in return for a
which are issued or are negotiated payment. This
proposed to be issued by payment is usually represented
the issuer. as a percentage of the policy’s
6 Viatical and Life Settlements Viatical and Life Settlements 7
How the Process Works
When the viator dies, the
Money is raised from investors to purchase interests in life insurance company pays money to
insurance policies. The viatical broker and the policyholder the issuer or broker-dealer, which
negotiate a price for the life insurance policy with the viatical then distributes the $100,000
provider. The negotiated price is usually represented as a death benefit to the investor(s).
percentage of the policy’s death benefit. If the viator had a 24-month life
expectancy and died at the end
When the transaction is complete, the policyholder receives the of that 24 months, the investor
negotiated payment and the investors receive an interest in the would receive his 28 percent
policy. At this point, the viator gives up ownership and control total return or roughly a 14
of the policy to the securities issuer. Generally, policies written percent annual return. If the
on individuals with serious illnesses and shorter life expectancies viator lives six years beyond his
will generate a settlement for a higher percentage of the death life expectancy, the investor still
benefit than those written on healthy individuals or those with a receives a 28 percent total return
longer life expectancy. on his original investment. His
annual return, however, has been
For example, a policyholder may sell a single $100,000 life reduced to 3.5 percent.
insurance policy at 50 percent of the policy’s value. The issuer or
broker-dealer would take $50,000 collected from the investor(s), Investors should be aware of this
and give it to the policyholder in exchange for the policy, which potential variability in annual
will pay $100,000 when the policyholder dies. returns. Selling a policy to an
investor is often less financially
The same transaction looks different to the investor. The advantageous for the policyholder
issuer, typically through a dealer, raises capital to purchase the than using accelerated benefits
$100,000 policy for $50,000 by selling interests in the policy to or taking out a loan against a
investors. If the policy is offered at a 28 percent discount of its policy’s value.
face value of $100,000, the issuer or broker-dealer will collect
$72,000 from investors, and forward $50,000 of it to the viator
to purchase the policy.
8 Viatical and Life Settlements Viatical and Life Settlements 9
Accelerated Death Benefits
An Alternative to Viatical Settlements
Before considering a viatical accelerated death benefit in the
settlement, a policyholder should terms of the life insurance contract,
check with his or her insurance many companies are making
company or agent to find out if the this option available to all their
policy qualifies for an accelerated policyholders. A policyholder can
death benefit. Some life insurance check with his or her insurance
companies offer this benefit, agent or company to find out if this
which pays part of a policy’s death option is available.
benefit, minus any outstanding
policy loan, before the death of In some cases, Florida law prohibits
the insured. a viatical provider from negotiating
or entering into a contract involving
This is useful for policyholders a policy that contains an accelerated
who want to use only a portion of death benefit. For the restriction
the death benefit, and leave the to apply, this benefit must equal
remainder of the money to their or exceed the amount available
heirs. Therefore, when the insured in a viatical settlement, and the
dies, their designated beneficiary insurance company must agree to
receives the remainder of the pay it.
Policyholders should carefully
When accelerated death benefits examine accelerated death benefit
are paid, the insurance company provisions and compare them with
may charge a service fee. But the viatical settlement offers, to
this fee is much smaller than determine which would provide the
the amount of benefits lost in greatest benefit.
a typical viatical contract. This
usually makes accelerated death
benefits a much better deal
for policyholders. While some
older policies may not grant an
10 Viatical and Life Settlements Viatical and Life Settlements 11
Information for Potential
Investors in Viatical Securities
Persons selling viatical investments that are considered securities are If the policy matures within the proceeds to investors. Who is
required to provide each investor with full and fair disclosure of all estimated life expectancy of the responsible for paying these costs
information relevant to an investment decision. Many times these insured, your annual rate of return and who will pay these costs if
disclosures are made in a prospectus or offering memorandum. Be sure will be high; if the insured lives for the issuer or dealer selling the
you are provided with this risk disclosure document and be sure to read a long time, your annual rate of securities goes out of business
the document carefully. return will be low. Make sure you or is otherwise unable to pay
understand the difference before these expenses?
Verify that the person offering or selling securities consisting of you invest.
viaticated policies is properly licensed in Florida. To verify licensure of The viator’s surviving family
all parties involved, whether you are buying or selling, visit Consider diversifying your portfolio members or heirs may challenge
www.fldfs.com, or call our toll-free Consumer Helpline at 1-800- by investing in a pool that contains the changes made to the life
342-2762. To find out if the person selling you a viatical settlement many different viaticated policies. insurance policy contract, delaying
investment is registered to sell securities, please call the Office of Spreading your investment dollars your payment even further. If
Financial Regulation at (850) 410-9893. over many insurance policies this happens, determine who is
should reduce your overall risk responsible for paying for any legal
Unlike some other investment options, a viatical investment usually is and may increase the liquidity fees incurred defending the rights
not readily convertible into cash. This means you may not be able to of your investment. You should to the policy.
get any portion of your investment back, even for an emergency, until also consider diversifying your
the viator dies and a death claim payment is paid. Remember that the investments into other products The life expectancy estimate
insured may live much longer than the estimated years, or live longer such as stocks, bonds or mutual is crucial to the success of the
than you. Therefore, you will not have access to your investment dollars. funds, to further reduce your risk. investment. Know how the life
Consider whether you can afford to keep the money tied up until the expectancy estimate is formulated.
insured dies. Ownership of viatical investments Determine the background,
can bring significant ongoing credentials and experience of the
Remember, the life expectancy of the insured person is just an estimate expenses. These costs include person or company that will issue
and many viators have lived significantly longer than estimated. There those associated with paying the the life expectancy estimate.
is no guarantee the insured person will die when the estimated time ongoing life insurance premiums,
runs out. Given the potential uncertainty surrounding life expectancy tracking the viator, monitoring the Know whether the person or
estimates, investing in viaticals may be considered a speculative health of the viator, filing a claim company establishing the life
investment. Be cautious of any person that represents these investments for payment with the insurance expectancy examined the viator or
as guaranteed or low risk. company and distributing the just reviewed medical records.
12 Viatical and Life Settlements Viatical and Life Settlements 13
Determine how accurate this • Serious problems may also arise
individual or company’s life if the original application
expectancy estimates have been submitted by the insured was
in the past. Find out if there was a intentionally inaccurate or
second opinion. Consider asking for “cleansheeted.” Cleansheeting
a written report of the accuracy of is when an agent or
the life expectancies issued by the policyholder deliberately omits
company that will be issuing yours. or misrepresents a medical
history, or other information
Viatical settlement investments on an application, to obtain an
used to fund an IRA or 401(k) insurance policy.
can create financial hardships if
the insured does not die before • Be cautious of fraudulent
you need to start collecting your schemes in which the
retirement benefits, or before policyholder obtains life
federal law requires you to begin to insurance policies, then
make withdrawals. immediately sells the policies,
and collects the cash settlement.
These are called “wet ink”
Beware the Dangers of Fraud policies and may involve fraud.
• You may lose your investment • The insurance company may
if the viatical provider, issuer, not pay death benefits on a
dealer or others involved have policy obtained using fraudulent
financial trouble or are involved in information, and may sue
fraudulent practices. for damages if the fraud is
• Life insurance companies
require a two-year “contestability
clause” to investigate and rescind
policies obtained using fraudulent
information. If you invest in a
policy less than two years old, you
take on a greater risk, since the
insurance company can
cancel the policy if it was
14 Viatical and Life Settlements Viatical and Life Settlements 15
Tips for Persons Thinking of
Selling Their Life Insurance Policy
• Check with your insurance • Protect your privacy. A large • As the policyholder, you may Beware the Dangers of Fraud
company or agent to find out if number of people may be involved change your mind and rescind
the policy qualifies for an in a viatical transaction requiring a viatical settlement contract • It is illegal for anyone to purchase
accelerated death benefit. An access to personal information. within 15 days from the date the your life insurance policy under
accelerated death benefit pays part Know who is involved, and check settlement funds are received. false pretenses, for any purpose.
of a policy’s death benefit, minus them out thoroughly. Any person who engages in such
any outstanding policy loan, before • If the viatical provider pays off a activity can be sued, and may face
the death of the insured. This is • To verify licensure of all parties policy loan out of the settlement criminal charges under Florida’s
useful for policyholders who want involved, whether you are buying proceeds, you will have to pay the insurance fraud laws.
to use only a portion of the death or selling, visit www.fldfs.com, or viatical provider that amount, plus
benefit and leave the balance to call our toll-free Consumer Helpline the actual cash received, if you • Be wary of an agent who says he
their heirs. at 1-800-342-2762. To find out if cancel the viatical contract during can sell your existing policy and get
the person selling you a viatical the 15-day “free look” period. you a replacement policy.
• Shop around and contact several settlement investment is registered
licensed viatical settlement to sell securities, please call the • If the policy is a whole life policy, • Don’t omit, or allow to be
providers or licensed viatical Office of Financial Regulation at make sure the contract specifies omitted, any factual information
settlement brokers. One provider (850) 410-9893. what will happen to any dividends, that should be included on an
might pay 35 percent of the face additional policy face value application for life insurance.
value of a policy, while another • Your decision may have a increases, and accidental death or These actions may be fraudulent
might pay 45 percent for the same negative financial impact on you other benefits, before the viatical and you could face criminal
policy. A viatical settlement broker and others as you may be denying settlement is signed and executed. charges, and be uninsured.
has fiduciary responsibilities to you, your surviving family members a
the viator. much needed benefit from the life • Contact any governmental • Florida law requires viatical
insurance policy. agencies and charitable brokers and providers to supply
• Find out the name of the escrow organizations that provide you certain written disclosures to
agent involved in the transaction • You may have to pay taxes on the entitlements or benefits. The prospective viators. The name,
and check with the department to sale that could adversely affect income from a viatical settlement business address and telephone
see whether any complaints have your financial condition. may disqualify you from receiving number of the escrow agent
been lodged against this individual. certain Medicaid, Medicare, Social involved in the settlement process
• If there is an existing loan Security or other benefits. must be disclosed.
against your policy, you may have
to pay it back before initiating a
16 Viatical and Life Settlements Viatical and Life Settlements 17
Additional Help DFS Service Offices
Daytona Beach Pensacola
135 Executive Circle, Suite 103 610 E. Burgess Road
Daytona Beach, FL 32114-1180 Pensacola, FL 32504-6320
(386) 323-0900 (850) 453-7800
Fort Lauderdale St. Petersburg/Largo
499 N.W. 70th Ave., Suite 301-B 11351 Ulmerton Road, Suite 240
Plantation, FL 33317-7574 Largo, FL 33778-1636
(954) 321-2900 (727) 587-7260
Those who have questions or problems regarding viatical settlements, Tallahassee
accelerated death benefits or life insurance may call the Consumer Fort Myers
2295 Victoria Ave., Suite 163 Larson Building
Helpline toll-free at 1-800-342-2762. The hearing impaired may order 200 E. Gaines St.
Ft. Myers, FL 33901-3867
such publications by using a TDD to call 1-800-640-0886. (239) 461-4000 Tallahassee, FL 32399-0323
You may also call the DFS service office closest to you. The service Jacksonville
offices are on the next page. Consumers may also obtain information 921 N. Davis Tampa
and assistance from the Department of Financial Services Web site at Building B, Suite 260 5309 E. Fowler Ave.
www.fldfs.com. Jacksonville, FL 32209 Tampa, FL 33617-2221
(904) 798-5800 (813) 899-6160
To determine whether the person selling you the viatical or life
settlement investment is registered to sell securities or has a disciplinary Miami West Palm Beach
history, call the Office of Financial Regulation at (850) 410-9893 401 N.W. Second Ave., Suite N-307 400 N. Congress Ave., Suite 210
Miami, FL 33128-1700 West Palm Beach, FL 33401-2933
Other Numbers and Web sites: (305) 536-0300 (561) 640-6700
Better Business Bureau (Check local directory)
400 W. Robinson St., Suite N-401
Florida Attorney General: (850) 414-3300 Orlando, FL 32801-1751
National Association of Insurance Commissioners: (816) 842-3600
Office of the U.S. Attorney Victim/Witness Line: 1-800-379-4643
18 Viatical and Life Settlements Viatical and Life Settlements 19
Division of Consumer Services
200 E. Gaines St.
Tallahassee, FL 32399-0323