What is viaticals and life settlements
July 2nd, 2008 by ALVIN SOONG
I was in overseas to take a short break from a hectic schedule on saturday till Monday. Take this chance to review on the Sunday News paper and summarise some of the articles here for those who have missed out.
I came across something interesting which I had long heard from a collegeue who does this and inform us about this.
For Viatical, eg. someone who is diagnosed with a terminal illness, and he does not have enough money for treatment or to cover his expenses till he dies. He has a life insurance policy that pays only upon his death. To turn his policy into cash, he can sell it to a viatical settlement company. These companies buy such policies, which they then package and resell to investors. They pay the policy holder a sum greater than the policy’s cash value but less than what it would pay on death. The terminally ill person gets money to do what he wants. The investors get the death benefit when he dies, as long as they cover the premium payments till then.
Life settlements are quite similar. The main difference lies in the life expectancy of the policy owner. While viatical settlements involve terminally ill patients who have life expectancies of no more than a year or two, life settlements involve policy owners with longer life expectancies - generally two to 13 years. In many cases, the policyholder is above 65 and has suffered a significant decline in health since he bought the policy. As with viaticals, investors get their payoff when the holder dies and they take the death benefit.
In Singapore, viaticals and life settlements are regulated by the Monetary Authority of Singapore. Only investors with an income of $300,000 or more in the preceding year or individuals with a net worth of at least $2 million may invest in such products.
Traded endowments - products involving the sale of endowment policies in the secondary market - need a minimum sum of $20,000.
MANY HAZARDS include in viaticals and life settlements:
1. Life extension risks: If the insured lives longer than expected.
2. Exchange rate risks: If the product is bought abroad.
3. Legal risks: If the industry is not properly regulated.
4. Fraud: If the settlement firm mishandles funds or the insured party misrepresents his state of health.
Extracted and summarised from Straits Times 30th June by original writer Christopher Tan
