Conservative savers are being made some astonishing new offers.
“Investment returns–75 percent for five-year maturity,” brags an ad on the Internet touting Accelerated Benefits Corp. in Winter Park, Fla. “No commissions and low minimum deposit . . . high rate of return with maximum safety.”
From Life Plan in Venice, Fla.: “42 percent on a 36-month term.” From First Trust in Indianapolis: “High Monthly Income,” 12 percent annual yield, “safe, guaranteed.”
Gosh. Why hasn’t everyone bought one of these deals?
The deals on offer are known as viaticals. You purchase a share in a life insurance policy from someone who is terminally ill, paying a discount from the policy’s face value.
The sick person gets money to pay bills. You get the insurance payoff when the seller dies. Life Plan’s Web site even claims that “The supreme court has rules (sic) viatical settlements to be a SAFE investment.”
The U.S. Supreme Court has ruled no such thing. Life Plan’s Lucille Heil says her source on that point was wrong and she’ll correct it. As for a viatical’s annualized return, it can, in fact, be high, but not reliably so.
Unfortunately, the U.S. Securities and Exchange Commission cannot compel full disclosure. A U.S. District Court of Appeals ruled last year that the commission lacks jurisdiction. No other state or federal agency has stepped aggressively up to the plate. Consequently, you need a code book to read the ads. For example:
– Take that five-year, 75 percent return. That refers to the lump sum you’ll receive when the sick person eventually dies. But it doesn’t tell you the annual yield. If the death occurs at the end of five years, your annual compounded yield would be roughly 11.5 percent.
You’ll get a higher annualized yield if the seller dies sooner than expected, and a lower one if the seller lives longer. So there’s nothing “guaranteed” about your annual return.
Accelerated Benefits President Jess LaMonda sees no reason to disclose potential annualized returns. “We don’t know when that person is going to pass on,” he says.
– You usually don’t own the policy you’ve invested in. The viatical company or a trust company does, and you have a lien on it. It’s not clear how long your money could be tied up if the viatical company went out of business. That’s not “maximum safety” in my book.
– To get First Trust’s “guaranteed monthly income,” investors put up money for two years and start getting payments right away. Those payments come from the profits on previous viatical deals, says First Trust Vice President Jeanne Huber.
If First Trust’s profits dried up, so would your monthly income. You’d have a lien on a viatical policy and should be paid eventually, but that’s not what I’d called “guaranteed.” Huber says the company is suspending the income program for a while.
– You’ll notice that viatical companies often use the language of bank certificates of deposit. Your investment is called a “deposit”; the sick person’s life expectancy is called your investment’s “maturity.” That implies bank-like safety, which isn’t the case.
– And take that “no-commission” claim. Salespeople most definitely earn commissions, usually 5 to 9 percent of the policy’s face value.
Accelerated Benefits itself didn’t write the ad with the no-commission claim. A Tampa, Fla., agent, Peter Moller, did. Moller says his ad is accurate because the company, not the client, pays the commission. But of course you pay. Who else is putting money on the table? Accelerated Benefits’ Jess LaMonda says he plans to write Moller, telling him to stop.
Viaticals can yield good returns. But because there’s so little disclosure or oversight, investors are flying blind.
