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Viatical settlement companies, in a bid to broaden their customer base, are no longer just targeting the terminally ill: they are now prospecting healthy senior citizens with excess insurance.
Viatical companies, whose business is to buy insurance policies and pay the owners a percentage of the face value, see a bright future in purchasing policies where the insureds are healthy men over the age of 70 and women over the age of 75.
The senior market is attractive because of its sheer size, said Brian Pardo, president of Waco, Texas-based Life Partners, a viatical settlement company. Especially when compared to the traditional viatical market that is geared toward the terminally ill, he added.
The senior market is “quickly going to dwarf the viatical market,” said Steven Arenson, vice president of Chicago-based Viaticus, a viatical company that is subsidiary of the CNA Insurance Companies.
This year, Viaticus expects to buy between $250 million to $300 million in face amount of insurance, approximately 80 percent of which will come from older healthy individuals. In 1997, the company bought approximately $75 million in total face amount, all in traditional viatical settlements.
Minneapolis-based ViatiCare generated 90 percent of its business last year from viatical settlements. This year the company expects 50 percent of its business to come from healthy senior citizens. “And its not because we are doing less viatical,” said Sapa Carlson, the company’s national marketing director.
Viatical companies are buying policies from seniors whose insurance needs have changed, said Ms. Carlson. The companies buy policies, pay all future premiums and then collect the face amount upon the death of the insured.
Seniors may have bought large policies when they had a young family, said Ms. Carlson. Then, when they reach a much older age, they realize that they don’t need the insurance anymore.
“What many [seniors] have done is stop paying the premium,” and the policy lapses, she said. While the elderly may benefit from not having to pay the premiums, “they ultimately get nothing,” she said. Now, seniors can sell their policies, and get some of their money back, she said.
Viatical companies are not only targeting the traditional family. They also are eager to buy “key man” and “buy-sell agreement” insurance policies from business owners, where the person insured is over age 70.
This senior settlement option is available for owners of term and cash value policies. Owners of term policies can capture value in a policy that has no underlying cash value. Meanwhile, owners of cash value policies may be eligible to receive more than the cash build-up in the policy.
“It’s like found money,” said Mr. Pardo.
Healthy seniors are likely to get between 5 percent and 25 percent of the face value of the policy, said Mr. Arenson. This compares to a traditional viatical settlement where the payout range falls between 50 percent and 80 percent.
The reason for the difference, in short, is that the life expectancy of a healthy senior is much longer, Mr. Arenson said. The terminally ill tend to have between 6 months to 5 years to live, while healthy 70-year-old males are expected to live for another 13.3 years.
The life expectancy for seniors is typically based on actuarial tables in conjunction with medical records.
Seniors with medical conditions are likely to receive a greater payout than seniors that are healthy, Mr. Pardo said.
But viatical companies will also scrutinize the policy in determining a payout value. Most companies told National Underwriter that they will review the strength of the insurer, the percentage of premiums to face amount and check to see if there are any loans or exclusions-before they make an offer on a policy. Companies also are very wary of policies that are less than two years old because if there is a misrepresentation of any kind, the insurer can void the policy.
Companies like Viaticus and Life Partners, by and large, target seniors with policies that have at least $500,000 in face amount. For a healthy 70-year-old man, it wouldn’t make sense to buy a smaller policy as “we couldn’t pay them anything,” said Mr. Arenson.
A small percentage of, say, $50,000 would not add up to much at all but a small percentage of $500,000 can add up to a significant total, he said.
Viaticus is more likely to make an offer on a smaller policy as the life expectancy of the policyholder decreases due to increased age or illness.
For example, the typical face amount on a traditional viatical policy at Viaticus is $80,000 to $90,000 said Mr. Arenson; meanwhile, that figure is in excess of $1 million for healthy senior clients.
The selling of senior policies can also benefit life insurance agents, viatical companies said. First, agents will receive referral fees for bringing the viatical companies business, and second, the broker that sold the original policy may continue to receive renewal fees.
If the policy were to lapse, the agent would receive neither, the companies said.
But not all viatical companies are equipped to buy senior policies. Many viatical companies, which act as intermediaries [i.e. they bring the elderly client and investors (often institutional investors) together] are experiencing difficulties in generating investor interest, said Paul Permison, president of the Ardan Group, a viatical company in Woodbridge, N.J., who is also the secretary general of the Washington-based National Viatical Association.
Mr. Permison said that in many instances viatical brokers are presenting more senior policies to viatical companies than the companies can buy and many companies that buy these policies do not have a steady flow of investor money to buy the policies.
He explained that some investors are reluctant to buy senior policies because a healthy senior could live 10 to 15 years. Investors, at this point, are more comfortable buying viatical policies because they typically are short-term investments (i.e. the insured is expected to die in the foreseeable future).
But Carole Fiedler a viatical broker and president of Fiedler Financial in Sausalito, Calif., said she has not experienced too much difficulty in selling seniors’ policies to viatical companies.
Ms. Fiedler said that as long as the premium expense is not exorbitant, the policy is incontestable, and the age criteria have been met, she has been able to help her clients sell their policies.
But Ms. Fiedler has found that some funding companies are very selective in terms of the policies they will buy. For example, some companies won’t accept senior policies if the insured is under the age of 80 years.
One concern with this new market is that investors that buy these policies may later harass the seniors they bought policies from, similar to what has happened in some instances in the viatical market, said Bob Littell, a principal of Brokers Research Center, Atlanta.
Mr. Littell said he feels comfortable that this type of harassment won’t occur when the investors are the big institutions like CNA, however, be is a little wary of the smaller-time investors.
But Sam Mangel, president of LifeTime Benefits in Jenkintown, Pa, said there may be some cases where senior policyholders are harassed, but added, he thinks it is less likely to occur in the seniors’ market than the viatical market.
“The cost requirements of keeping these policies up will be prohibitively expensive for the smaller players,” he said. The cost of buying a policy is typically very high, and then investors have to pay, on average, large premiums for up to 10 years. This is a market that is more geared toward the big institutions, he said.
While Mr. Permison said the senior market will be much larger in upcoming years, he believes funding groups need to go out and promote the concept to the investment community. Companies need to develop greater confidence among investor groups about the senior market, he said.
Source: The National Underwriter Company

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