Personal Business: Smart Money
EASING THE ECONOMIC BURDENS OF TERMINAL ILLNESS
Financial hardship often adds to the many pressures facing the terminally ill. But there's a ready source of cash for the dying: their life insurance.
A loan against a life insurance policy is one of the first places that someone who is terminally ill should look for help. The proceeds of the policy can pay back family members and friends who have the means to lend a large sum while the policyholder is still alive. Holders of whole life insurance, which has a savings component, can take out a personal loan up to the policy's cash value.
If neither of these options is feasible, check with the insurance company. Primarily in response to the AIDS epidemic, about 150 insurers provide payouts to terminally ill policyholders as a "living benefit." Insurers may charge a small fee but often hand over more than 90% of the policy's face value. Prudential takes about a 4% cut to cover the loss on interest from paying the benefit early and charges a $150 processing fee.
Most insured people still do not have this choice. Also, insurers typically restrict the coverage to those policyholders who are expected to live only 6-12 months. The National Insurance Consumer Helpline (800 942-4242) can provide a list of insurers that offer accelerated benefits.
Filling a void. A far less remunerative option is available to almost any policyholder who is dying. A new industry has sprung up in the past four years that will buy policies from the terminally ill, paying out 50% to 80% of the death benefit in return for being named the beneficiary. The 30 or so "viatical settlement companies" have been criticized for taking advantage of the dying. California, Kansas, and New Mexico are the first states to try to prevent abuse by creating licensing requirements. Still, because purchasers will work with almost any policyholder who has a shortened life expectancy, these companies do fill a void left by the insurance industry.
Negotiating a settlement is "about as complicated as selling a used car," says David Petersen, a retired financial adviser who suffers from cancer and AIDS. He recommends shopping around to about five settlement companies for the best price. The process can take one to three months and requires the submission of medical records and a questionnaire. For a list of settlement companies, call Affording Care, a nonprofit information service for the seriously ill, at 212 262-9449.
These funds are now taxable, but the Internal Revenue Service is expected to adopt a rule this summer to make accelerated benefits tax-free.FINDING FUNDS
NEAR THE END
Source Payout on a Life expectancy
$100,000 policy requirement
Personal Up to
loan $100,000 None
Prudential $96,000 plus 6 months
MetLife $92,000 12 months
Affirmative $60,000 to 12 to 30
Lifestyles* $75,000 months
*Settlement company DATA: BUSINESS WEEK
Robert De Michiell