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Cheated by Viatical

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Cheated by Viatical & Life Settlement Investments

Part Two RISKS

In our second article on Viatical and Life Settlement Investments, we are going to cover more of the risks involved in investing in Viatical and Life Settlement Investments. Please see the first article for a general description of these investments.

The concept behind these investments is that an investor can profit by buying the insurance policy and obtaining the death benefit of an elderly person who is selling their insurance policy. Elderly people, needing money, can sell their life insurance policy to a promoter of these types of investments. A promoter will pay a cash payment to the elderly person and relieve the owner of the policy (the insured) of having to pay premiums as they get older. These promoters then sell fractional interests in these life insurance policies to investors. The promoters package such policies into bundles and then put them in so a “trust” obtaining many different policies involving many investors called beneficiaries of the trust.

Investors should be careful when considering whether to invest in these policies for a number of reasons. This is the second in a three part article designed to point out some of the dangers and risks in investing in this type of product.

  • What are the downside risks that can affect the investment value or return on investment?
  • It is impossible to predict the effect of longer life expectancies and pharmaceutical and medical advances. Naturally premiums may and often do go up as the insured ages causing the investment return to go down. An actuary may say that life expectancy is a certain number, but realty is often quite different. Sure there are possibly policies that lock rates in, or techniques that deal with these rising premiums, but most investors are unprepared for the huge increase in premiums when they are asked to contributed money when the reserves run out. Salesman may not deal with that issue honestly. Again an investor is betting against the insurance company and wants a shorter life for the insured, and the insurance company is betting on a longer life. Investors investing in this area may not have the understanding of all the underlying factors that goes into knowing what is really determinative of success or failure in this area. An investor unfamiliar with an area of investment is subject to manipulation and courting disaster. These investments look good on paper but it seems something always happens, in my experience that makes many of the investment flop, fail or just be disappointing compared to other investments.

  • What other risks are there?
  • Often these investments are put in trusts to be administered by impartial, competent people often called trustees. I have had experience where this area of the investment utilizes people to be trustees who are incompetent and not impartial or honest. Such trustees may engage in self-dealing and are willing to compromise the investors’ interest for their own or others. The longer one owns an insurance policy on the life of another, the more valuable it should become although the return on the investment drops. The more valuable it becomes, the more tempting it can be for a “vulture” to come down and take it away. I have seen this happen to numerous investors. This should be worrisome to potential investors. I have seen several scenarios of the “vulture” at work, from outright dishonest taking of the money that is supposed to be set aside for premiums or outright keeping the bulk of the money from the death benefit that was supposed to be distributed to the investors when the death benefit matures.

  • Doesn’t the reserve account alleviate the risk of running out of money to pay future premiums?
  • In the perfect world, the people who put these investments together are supposed to calculate and set aside enough money to cover premiums to hopefully out- last the insured’s expected life. If the promoter does not have the competency, tools or data to calculate the correct amount, or makes a mistake in the calculations or understates the life expectancy, there can be problems. Investors are not prepared to come up with huge amounts of money years after their initial investment. The policy is in danger of lapsing if the premiums are not paid up. This creates a perfect storm for a “vulture” to come in and take the policy away by buying it out at a distressed price before a lapse. This results in the investors losing all of their investment. That is why the guarantees from the salesmen and promoters can be deceptive.

  • Yes, everyone dies but not every policy is paid until death and able to provide the survivors or policy owners with a death benefit.
  • The threat of lapsing can be the justification for third parties coming and taking over these policies so they can sell them to another group of investors and profit again in re-selling the policies. Stealing policies out from under investors is another area of concern for this form of investment that investors should be aware. When the insured dies, then the death benefits are supposed to be distributed to the investors who are also beneficiaries of these trusts. But this money is subject to being pilfered if incompetent, dishonest people are in control.

  • What was the sales pitch that convinced people to invest?
  • The investors we represented showed that they were guaranteed a 50 % total fixed return. They were told it was just a matter of time, because the insured will die and they will receive the payoff. But it is not that easy. They are not told that the insureds can outlive expectations, and that the premium reserves can be depleted or need to be replenished as the insured gets older.

We are investigating life settlement cases and cases that might involve Brian McGuane, David L. Kagel and others in the sale, and administration of life settlements or viaticals especially when working out of companies named Oxford Financial Group policies, Omni Advisor Group, Inc., and similar trusts mainly, OFG Trust, OMI Trust, SI 100 (SI-100) Trust, etc. We also can be of assistance with anyone having problems with viaticals or life settlement policies generally. If you have lost money in scenarios similar to the above or any investment of this sort, please give us a call at the Murrin Law Firm. Call Today and ask for J. Owen Murrin. (This article, and the two following articles are the writer’s personal opinion in handling these kind of cases, and may not be representative of another’s view or reality)