Below is an explanation we ran in our weekly newspaper feature (for more info on how to get it in your local paper: http://www.fool.com/Specials/1999/sp990409Newsprint.htm)SelenaQ. What do you think of viaticals as investments?A. Viatical settlements have grown in popularity in recent years. But they're not without risk and they may make some people uncomfortable. Viatical settlements are when a terminally ill person sells his or her life insurance policy to someone else. Imagine John, stricken with a fatal form of cancer. He's 36 and is expected to live only three more years. If he needs cash to pay for medical bills or just to spend and enjoy, he might sell his life insurance policy to Jane. If it's set to pay $100,000 on his death, Jane might pay $66,000 for it. That way he gets a lot of cash now and Jane expects to get the $100,000 in about three years. At that rate, she'd be earning roughly a 15 percent annual return.There are many risks, though. John may hang on for seven years, significantly reducing Jane's return. Indeed, a cure for his cancer might be discovered. John may even outlive Jane! It's true that these settlements can provide a service for sick people, but they're not necessarily win-win. The middlemen arranging these settlements take cuts. Also, if John lives, he's without his life insurance policy and few insurers will want to insure him, as he's been so sick recently. We're uneasy about investing in something that has us rooting for speedy deaths and against medical breakthroughs. Also, there have been many instances of fraud with viaticals. For more info online, visit www.viatical-expert.net.
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