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VIATICAL SETTLEMENTS - SELLING YOUR LIFE INSURANCE POLICY

John Warchol
Atlanta Legal Aid Society
AIDS Legal Project
October 1, 2002

Here are some points to consider in deciding whether to viaticate your life insurance policy.

* Viatical settlement is an arrangement between the owner of a life insurance policy and a non-insurance company that buys the policy. This arrangement is a transfer of ownership of your policy from you to a third party. For this transfer, you usually receive only 50% - 75% of the value of the policy. At times, a broker finds a third party to buy the policy.

* Before you decide to viaticate your policy, consider your other options. One option is to sell the policy back to the issuing insurance company by requesting accelerated death benefits or living needs benefits from your insurance carrier. Usually this option provides you with more money than will a viatical settlement. Additionally, your beneficiaries will receive the balance of your policy when you die. You must read your policy to determine whether this option is available to you. Many older policies do not include this option. However, many insurance companies will add the benefits if you ask for them.

A second option is to ask a friend or family member to loan you the value of the policy in exchange for your naming them the beneficiary of the policy.

* Both group and individual term life insurance policies that are more than two years old can be cashed in prior to death for a price.

* The viatical company should have an escrow account. Ask if there is an escrow account and where it is located. An escrow account is used to hold the purchase money so that the seller of the policy can be assured that the buyer of the policy will make full payment.

* The viatical company should have an escrow agent. Ask if there is an escrow agent and ask to be provided the name of and telephone number for the agent.

* Be aware that any money you receive may have an adverse affect on public benefits you currently receive. For example, the money may exceed the SSI resource limit or affect food stamps.

* Viatical settlement companies are unregulated, so you must be a good consumer: call the Better Business Bureau, talk to friends and service organizations, get offers from several companies.

* Call the Georgia Insurance Commissioner (404-656-2070) and the Insurance Commissioner for the state in which the company is located. Ask them if they have any information about the company.

* Selling your life insurance policy may be a taxable event. Some companies, however, do not issue 1099 tax forms. It is your duty to report to the Internal Revenue Service the amount of money you received. Some viatical settlements are exempt from federal taxes; you should ask an attorney or tax advisor whether this law applies to you.

* Many viatical settlement brokers will make a very low first offer. You have the right to refuse any offer and to seek a higher offer from that broker or from another broker.

* Viatical settlement is not a fast process. Many transactions take 6 - 8 weeks to complete.

* Look for a rescission clause in the contract between you and the viatical settlement company. You should not sign a contract that does not contain a rescission clause.

Some viatical settlement brokers and companies take advantage of persons who sell their life insurance policies. If you feel that you are the victim of dishonest business practices, please consult with the AIDS Legal Project at (404) 614-3969 or a private attorney.

Remember: The law often changes. Each case is different.  This flyer gives you general information. It is not meant to give you specific legal advice.  Talk to a lawyer if you have questions.

For more information please contact the Atlanta Legal Aid Society or Georgia Legal Services Program office nearest you.

For Clayton, Cobb, Dekalb, Fulton, and Gwinnett Counties, call Atlanta Legal Aid Society: 404-524-5811

For all other counties, call Georgia Legal Services Program:  1-800-498-9469 (toll free)

For Seniors age 60 and older, call the Georgia Senior Legal Hotline: 1-888-257-9519 (toll free)

John Warchol
Atlanta Legal Aid Society
AIDS Legal Project
October 1, 2002