I heard about investing in Viaticals. What do you think?
In short: Don't do it.
If you are interested in a long version of the above answer, please feel free
to read the following:
What is a viatical?
A Viatical (or a viatical settlement) is generally the sale
of a life insurance policy (or more accurately, the sale of the beneficial
interest in a life insurance contract) to a third party at a discount by the owner of the
policy. Typically the policy owner is considered to be terminally ill and is
having financial difficulties. For this reason, viaticals are marketed as
humanitarian investments.
What is the problem?
Well, that is a rather complex question.
First, the viatical settlement, since it is the resale of the beneficial
interest in an insurance
policy, matures when someone dies. Frankly, we would rather not be investing
in death or hoping that someone will die so that we can get to our money.
Second, the viatical settlement only matures when someone dies, or, if it
is a term policy, it matures when the term ends. Since a term life policy
could have a maturity date twenty years in the future, your investment dollar
would be effectively out-of-reach until the insured dies or the term expires.
Third, suppose that you convert all (or most) of your retirement
investments into viatical funds just before retirement. Suppose then you have
a need for some of the funds invested in the viaticals. If none of the insured
individuals have died, you may be unable to access your money.
Then why would anyone invest in a viatical settlement?
Because they are marketed as providing annual investment returns of 25% or
more. Although these returns may be possible (if the insured(s) die soon after
making the viatical settlement(s)), this is not an investment option
that we would recommend.
Around the time that we first posted this article on our website we found out
that the State of Maine now requires viatical settlements to be registered as
securities. It is our opinion that given this registration requirement, it is
unlikely that any of our Maine resident clients will encounter viatical
settlements.
Please contact us if you have additional
questions.
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