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All About the Viatical IndustryA Little Background
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The word "viatical" comes from Latin via, meaning "road" or "way." A viatical settlement involves the sale of life insurance to make the road for the seller a better one. It's good news for policy holders with a terminal illness, who could receive a lump sum equal to a substantial percentage of a policy's face value. An entire industry has grown out of this concept. A couple of wonderful, very recent developments -- legal and medical -- will affect many of our clients.
A Little Background |
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Just five years ago, the viatical settlements industry was in its infancy. Then, many viators had to take whatever they were offered, sometimes a very low percentage of their policy's face value. When brokers like Individual Benefits began to offer their services, the business of viatical settlements changed from a buyer's to a seller's market, putting the power where it belonged, into the hands of the viator. Since then the offers have become much more attractive, and viators' settlements have increased substantially. In December of 1993, the Viatical Settlement Model Regulation Act was developed by the National Association of Insurance Commissioners (NAIC). These guidelines for the viatical settlement industry will assist state regulators nationwide to protect viators. The NAIC model law establishes guidelines for fair payment to policyholders and mandates that viatical settlement companies make full disclosures to consumers.
Good News |
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Lower Taxes Congress passed legislation to eliminate federal income tax on the proceeds of viatical settlements and accelerated death benefits. President Clinton has signed the bill, which will go into effect January 1, 1997. Settlements which closed after that date will qualify, given two stipulations. First, the viator must be certified as terminally ill -- that is, have a life expectancy of 24 months or less at the time of the transaction. Second, If a viator's resident state requires providers to be licensed, only transactions by licensed viatical settlement companies will be tax free. This makes it even more important to work only with licensed or registered companies. Approximately 20 states have now enacted or are considering regulatory legislation as well as tax-free treatment of viatical settlements. Even in states like California and New York, which have made viatical settlements tax-free, you may still owe capital gains taxes on the difference between the payment you receive and the amount you've paid in premiums. Your attorney, financial planner, and/or cpa can bring you up to date on current legislation.
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About HIV and AIDS While people with cancer and other incurable conditions benefit from viatical settlements, the majority of our clients are dealing with AIDS, a disease that has become the greatest puzzle of the 20th century. That's why Individual Benefits is so happy to report that a few of the pieces may finally have fallen into place. Effective treatment could be within reach for those in the early stages of AIDS. Early testing for HIV may prove critical to extended life expectancy for those who have contracted the virus. A remarkable breakthrough in AIDS treatment was announced recently by researchers from the Aaron Diamond AIDS Research Center in NY. It's called "triple combination therapy," and so far, it bids fair to reverse the course of HIV. Teaming three new protease inhibitor drugs with established drugs like AZT seems to purge the blood of virus. By blasting the infection at the start this therapy holds out the first real hope acknowledged by the medical community. Nine newly HIV-infected patients appeared aviremic -- without detectable virus -- for as long as 300 days. "We simply cannot find evidence of viral replication," said Dr. Martin Markowiz, lead investigator in the study. "Active viral replication has been turned off." The immune systems of the patients appeared to be normalizing. |
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It's not touted as a cure. Rather, "control" is the key word for the researchers, who hope they have forced the circulating virus into a remission of sorts -- the way chemotherapy acts on cancer to suppress the disease. Three protease inhibitors have already been approved and two more are under development. Researchers also introduced another new batch of arms to the arsenal: integrase inhibitors, which target a different HIV enzyme. Experts like Jerome Groopman of Harvard believe that, over the next decade, those with HIV will gain 10 to 15 years of quality life with antiviral treatment. The documented cures of infants with AIDS may cause some to wonder if this new treatment might be able to overwhelm the HIV virus in people who have been recently exposed. The answer will have to wait on further research. "We must find out if it's possible to have [all the virus] burned out," said Dr. David Ho of the Aaron Diamond Research Center. This September, when their first patient completes a year of treatment, Markowitz and Ho will determine whether the virus has taken refuge in the lymph system, a sanctuary from the protease inhibitors. The results will hold the answers for which everyone is waiting: can the treatment eliminate the virus? |
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