The Washington Blade; Friday, February 7, 1997
Peter Freiberg

Leny's hopes depend on making a viatical settlement -- selling his $120,000 life insurance policy to a firm that will buy it at a discount and cash it in for full value after his death.

Less than a year ago, before last summer's International Conference on AIDS in Vancouver, British Columbia, Leny would have felt sure of getting a high percentage of the policy's face value -- maybe up to 90 percent.

But since Vancouver, where researchers publicized the hope held out by new therapies involving protease inhibitors for longer life expectancy, the viatical industry has been turned topsy-turvy. Some firms folded, some are no longer purchasing policies from people with AIDS, and many are offering significantly less money for policies than previously.

The result is that people with AIDS face much more uncertainty now when trying to sell their policies, along with the possibility of getting substantially reduced payments.

Leny, who says protease inhibitors initially helped him but that he subsequently developed resistance to them, reports being told to expect anywhere from 50 to 85 percent of his policy's face value. He insists he won't sell for under 85 percent, saying, "I figure I've had more opportunistic infections than the average person, so I deserve to get more."

Given his deteriorating health, Leny might get the amount he is seeking. But nothing is definite anymore in what is widely reported to be an industry in turmoil.

Paul Hampton Crockett, a South Beach lawyer who negotiates for people with AIDS seeking to sell their life insurance policies, says, "The percentages are dropping rather markedly."

"For the first time, routinely, I'm starting to see people talk [about buying policies in the] 30s," says Crockett. "The bare-boned minimum used to be 50 percent [of face value] and above. ...

"Historically, this has been very much of a seller's market," says Crockett, "but now it's kind of the other way around. ... [P]ractically speaking, the market's in total chaos.

"What it boils down to is the advances in treatment for HIV are wonderful news, but are terrible news for the viatical industry and terrible news for people trying to sell their life insurance policy," says Crockett.

In New York, reports Per Larson, a financial adviser to people with AIDS, 75 percent of licensed buyers of viatical policies have left the market. Jacques Chambers, benefits program manager at AIDS Project Los Angeles, says, "We've always said anyone trying to sell their life insurance policy has to bid it out wide enough to let the competition drive the price up. With fewer competitors, that's harder to do."

David Landay, an attorney and AIDS activist who heads a viatical consultant and brokerage firm, agrees the market "is very volatile right now."

While Landay finds that companies aren't offering less than before for the same life expectancy, "The question," he says, "is: 'With a given condition, what is the given life expectancy?' That's what's changed."

If, in fact, protease inhibitors are proven to have failed to work on someone, "we can still get them the same price we would have been able to get for them a year ago," says Landay.

The situation is even more complicated because of new federal legislation that took effect Jan. 1.

For the first time, payments obtained from a viatical settlement will be legally tax-free, if the seller is certified by a physician as having 24 months or less life expectancy and deals with a "qualified" viatical agency, which means the company must be licensed in the state where the sale occurs if that state requires licensing.

While most people with AIDS are undoubtedly glad to know their viatical settlements can be tax-free, the federal requirements mean they must scrutinize their offers especially closely.

"A lower offer tax-free," says Landay, "may be better than a higher offer [from an unlicensed company] that's subject to taxes." Many firms that advertise in states are not necessarily licensed there, notes financial adviser Larson.

The viatical industry is only about seven years old, having started in direct response to the need of people with AIDS for funds. Institutions -- like banks and insurance companies -- as well as individual investors recognized that they could profit by buying policies at partial value and ultimately cashing them in for full value.

Laura Flegel, director of legal services at the Whitman-Walker Clinic in the District, asserts that only a "very small percentage" of people with HIV who come to the clinic have a life insurance policy to viaticate.

"When we're talking about viatical settlements for people with AIDS," says Flegel, "we're talking about what I think is a very important mechanism for a very small group of people."

Moreover, with rising hopes emanating from new drugs, fewer people with AIDS may seek to sell their policies.

"I'm getting a lot more inquiries about going back to work," says Mark Scherzer, a New York attorney, "than I am about selling life insurance."

But there is no question that thousands of people with AIDS have availed themselves of the viatical opportunity -- including many who were not well off financially.

"I know many people ... whose quality of life was ... changed for the better because of their ability to sell their life insurance policies," says Whitman-Walker Executive Director Jim Graham. "They went from what would have been a pauper state to people of some means, and that's the way they died."

At the same time, notes Graham, there has been a "macabre dimension" to the viatical industry.

"It is just undeniable that the quicker someone dies, the greater the advantage to the investor," he says.

Vancouver was the industry's "watershed," says Crockett. Days after the AIDS conference ended, Dignity Partners Inc., a San Francisco-based viatical firm, announced it would stop buying life insurance policies from people with AIDS because medical advances made it likely that their life expectancy would be extended.

William Kelley, executive director of the Viatical Association of America, one of two major industry groups, says its membership has dropped from 27 to 22 since November.

Those that remain, says Kelley, are "much more stringent" than before in underwriting criteria when they buy policies. They are, he says, paying especially close attention to viral load.

"Is it going up or down?" says Kelley, "And if it's going down, is it because of protease inhibitors, in which case, [the viatical company] might give [the prospective seller] the Vulcan salute -- 'Live long and prosper' -- but not buy the policy."

Kelley says the industry is trying to "reinvent itself ... to find a way to reach out to people with other illnesses. ... That doesn't mean they're going to walk away from people with AIDS, but we've got to educate people with cancer and Lou Gehrig's disease and heart disease that viatical settlements are something they should consider."

For a person with AIDS whose life expectancy seems to be between 18 and 24 months, says Kelley, a viatical company might pay 60 percent of the policy's face value.

"That's what it was before," he says, "but it's harder [to get] now. I've heard of people trying to sell policies, and they've not succeeded; or maybe a broker has tried to market a policy to a viatical settlement company and found out -- after the company gets the medical records -- that the company is not going to buy it [because] there are just too many uncertainties. ...

"Some companies, they say, cruel as this sounds, 'Why don't you call me back when you're really sick?'" says Kelley.

For a few people with AIDS, who feel desperate for money, this means taking extreme measures. Berne Teeple, former vice president of American Life Resources -- a viatical settlement company that went out of business in December -- says one client, a Gay man in his 30s, sought to sell his policy last year. While American Life was waiting for the man's insurance records, says Teeple, the man started taking protease inhibitors and found his T-cell count going from 47 to 212.

"I said, 'I've got good news and bad news,'" recalls Teeple. "'The good news is you're healthy, the bad is that I can't buy your policy.'"

A month passed, and the client called again, just as Teeple's company was closing down.

"He said, 'Guess what, my T-cells are down to 87. I went off the protease.'" The man is now negotiating with another firm to try to sell his policy, Teeple said.

Teeple, now an official with the Florida AIDS Action Council, says he also heard from two clients who would not start taking protease inhibitors until they sold their policies.

"I can't make judgments," Teeple said. "I can only say, 'I'm really sorry to hear that.'"

Like the man who stopped taking the protease inhibitors, said Teeple, "They're putting their money ahead of their health, but that's their priority. I wish they wouldn't do it."

Teeple says that, given the reduced payments, "I think the man or woman selling the policy really needs to sit down and figure out what their financial needs are" -- and whether a viatical sale is the best course for them. Many viatical companies, he says, won't tell sellers that they can sell a portion of their policies and keep the rest.

"They might be able to sell half now, hold onto half, and pass it on to beneficiaries," says Teeple. "Heaven forbid, if their health does deteriorate, they'd have that 50 percent to sell, and they might get more [money] then." New York's Landay hopes that as more information comes out about protease inhibitors -- "when they do work, when they don't" -- more purchasers of policies will say, "'OK, we can quantify the [investment] risks, we'll come back into the market'."

Financial adviser Per Larson urges sellers to get advice from an attorney or a financial planner, especially since they could now find payments from a policy sale taxable unless they meet federal requirements.

Glenn Bristow, a financial planner, recommends caution about viaticating. "People just aren't thinking through," she says, "'What am I going to do with this money, and how long am I going to live, when am I going to die? If I don't know the answer to that, then I better think twice about removing a strong asset from my portfolio.'"

South Beach attorney Crockett notes that some life insurance companies have begun to allow terminally ill policyholders to cash in their policies now for a percentage of their benefits, rather than have their beneficiaries cash them in for the full amount after their deaths. To receive these "accelerated benefits," the policyholder must usually have 12 months or less to live.

"I had one guy recently who did an accelerated benefits," said Crockett. "He got ... 92 percent of a $100,000 policy, a full 25 points above what he would have gotten [from viaticating]."

Meanwhile, the fluctuations in the viatical market are viewed by many AIDS activists as reflecting the increasing optimism, despite continuing uncertainties, that people with AIDS will be living longer.

It's true, says Kiyoshi Kuromiya, director of Critical Path AIDS Project, an electronic AIDS treatment information service, that people "don't have as much of an asset" when they try to sell their life insurance policy.

"But, hey, they have something better," asserts Kuromiya. "They have a future. I'd rather have that. ... I'd rather have a reason to live."

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