BY SUE MacDONALD
The Cincinnati Enquirer
By the fall of 1995, Conrad "Jab" Jablonski had already outlived his doctor's cancer predictions by more than four years.
In 1991, his urologist had given him three to six months to live with an advanced case of prostate cancer. Yet here he was beating the odds, helping his wife of seven years, Kandi, with her cleaning business.
But health insurance had been canceled because of his cancer, bills had piled up, and Kandi's oldest daughter had just announced wedding plans.
"We said, "OK, we'll carry our end of the load,' " recalls Mr. Jablonski, 62, of Anderson Township. "But I was thinking to myself, "I don't have the faintest idea where we're going to get the money to pay for this wedding.' "
What helped -- and what helps many people with terminal illnesses who are facing financial strain -- is an option called a viatical settlement. Since 1989, when the viatical movement began, thousands of Americans have taken advantage of a simple concept:
A terminally ill person sells an existing life insurance policy to an investor -- usually an insurance company -- for a percentage of its face value, and the cash is used while the person is still alive.
Although exact figures are hard to come by, viatical specialists estimate growth in the industry from about $50 million in cash paid in 1991 to more than $700 million in 1998. Most policies are bought for 60 percent to 80 percent of face value.
"It's not for everyone, obviously," says Deborah Rhoades, a viatical broker and owner of Viatical Clearing House Inc. in Loveland. "For some people, receiving the death benefit after death in total is better than receiving the reduced amount before death.
Definition: "Viaticate" is defined as provisions, money or supplies for a journey. In insurance circles, it means someone with a terminal illness sells a life insurance policy for cash while still living. The new owner of the policy, usually an insurance company or investor, assumes the premiums and receives the remaining death benefit when the person dies. The average settlement is 60 percent to 80 percent of the policy's face value. |
Privacy: Privacy is protected. The policyholder's doctor must provide medical proof of the terminal illness and an estimate of how long the person has to live. Various factors play into how much an investor offers for each policy.
Tax status: Statutes vary
so ask a tax professional or the IRS before you decide. In most cases, viatical settlements are tax-free if the person has less than two years to live. Viatical professionals: Check your phone book for financial planners or insurance agents who specialize in viatical settlements, or contact the National Viatical Association for members.
Legal status: In June, the National Association of Insurance Commissioners approved the Viatical Settlements Model Legislation, legal guidelines to standardize settlements nationwide.
Information: Viatical Clearing House Inc., P.O. Box 219, Loveland 45140, founded by Deborah Rhoades; 583-0060 or (800) 969-0509 or go online at http://www.viatical-online.com. National Viatical
Association, based in Washington, (800) 741-9465 or at http://www.nationalviatical.org.
"But this is just another option that people should know exists. So many people say, "I didn't know anything about this until my (insurance) agent told me, or until I saw an ad for it.' "
By following industry guidelines and established practices, a viatical settlement can be completed without the purchaser of the policy being interpreted as opportunistic or ghoulish, she says, although that image dogged the viatical industry in the early 1990s.
Once a settlement is made, the investor or insurance company that buys the policy becomes its owner -- responsible for premiums and able to collect whatever benefits remain when the person dies. In June, the executive committee of the National Association of Insurance Commissioners approved model legislation that governs viatical settlements.
"Today, people are able to see both sides of it," Ms. Rhoades says. "It has to work for everybody in order for it to be available -- the person selling the policy and the investor who buys it. It's a classic win-win situation."
Policy holders just need to make sure it's the best option for them, she says.
In late 1995, when the Jablonskis decided to pursue a viatical arrangement, they received two-thirds the value of Mr. Jablonski's insurance policy.
With the money, they paid outstanding bills, held a wedding for Kandi's daughter, prepaid Mr. Jablonski's funeral and had a bit left for savings. (Mr. Jablonski's cancer has since spread to his spine and ribs).
"The money is used for all kinds of things," says Ms. Rhoades, also a founding member of the National Viatical Association in Washington, noting that the average policy is $75,000. "Some people use it for medical care. Some need it for living expenses or to fulfill a life dream."
"Many of these people have lost their ability to earn money, so when you're on disability or a retirement income, there isn't going to be a whole lot left over for the extras," she says. subhed:Difficult decision body:
Ms. Rhoades started her business in 1992 after working for a financial planner who was involved in viatical settlements. She wanted to see that terminally ill individuals get the best possible buyout.
Any type of life insurance can be sold -- individual or group policies; whole life, universal or term insurance. Once sold, the policy's death benefits are paid to the new owner, usually an investor or insurance company.
Making the decision about a viatical settlement is not easy, the Jablonskis say. It requires frank discussions of difficult topics -- mortality, family finances, beneficiaries, bills, funerals, quality of life and how survivors cope after someone dies.
Some people interested in viatical plans are turned down, Ms. Rhoades says, usually because they are not terminally ill or because doctors cannot reasonably predict their life expectancy.
"If there are other means people can use to protect themselves, fine," Mr. Jablonski says. "But I think whoever created this viatical program created one of the best vehicles in the personal-life field. Our life has been a whole life."
"It sure does take a load of pressure off you," says Kandi, 50.
Jay, who lives in southern Ohio and asked that his last name not be used, sold his $170,000 insurance policy in 1995 for $125,000. He has AIDS; his partner at the time also had AIDS but died in 1997.
With the money from the viatical settlement, the two took a long-needed vacation. Jay prepaid his funeral and paid medical bills. He now uses the rest to pay for current and pending medical care.
"It's enabled me to keep dignity in my life," he says. "I don't live in a mansion. I'm living in a double-wide mobile home. It's left me only to have to deal with the medical part of this AIDS. I don't have to worry about month-to-month things or emergencies that come up. That stress is gone."
Most satisfying, he says, is the security that a viatical settlement provides.
"If I die tomorrow," Jay says, "I die knowing that I was able to take care of everything beforehand and didn't leave a financial burden on my family." Impact of AIDS
The viatical movement was spurred heavily by the jump in AIDS diagnoses in the late 1980s, a time when many gay men -- cut off financially by their families and unable to work because of sickness -- faced catastrophic medical bills.
Selling life insurance policies evolved as one way to obtain cash, especially for those who did not have to worry about leaving behind a financial legacy for survivors.
"If you've got dependents, if you've got young children to take care of, if you've got someone you're responsible for or who needs security after you're gone, I don't think this is for you to do," Mr. Jablonski says.
Indeed, says Ms. Rhoades, a viatical settlement is just one way to juggle finances to care for a terminally ill person or family. Other options include:
It saddens Ms. Rhoades when she hears of ill people who say they would be better off dead so that their survivors could enjoy insurance and other benefits -- or who sell a home they love because it's the only way to raise much-needed assets.
- Accelerated death benefits (a way of negotiating with the insurer a death benefit payout).
- Using a policy's cash value.
- Borrowing against a life insurance policy.
- Refinancing or selling a home.
"I would guess that most families would rather not have that feeling," she says. "They would rather be able to enjoy that last year or two without the financial worries."