"Living Benefits" -- Options and Resources

[Note: Thomas P. McCormack, a leading expert on AIDS
insurance and entitlement issues, is the author of The AIDS
Benefits Handbook (Yale University Press, 1990). He has
served as benefits policy specialist with the U.S. Department
of Health and Human Services, and with the National
Association of People with AIDS (NAPWA). He is currently an
HIV-benefits correspondent for PAACNOTES (published by the
Physicians' Association for AIDS Care), and is on the
advisory board of Affording Care, Inc., a non-profit
organization which promotes insurance and entitlement
education for seriously ill people.

[Mr. McCormack and Yale University Press may revise The AIDS
Benefits Handbook once the outcome of health-care reform
becomes more clear. Meanwhile, he is publishing articles in
newsletters, including AIDS TREATMENT NEWS, to get important
benefits information quickly to those who need it.

[The article below may be useful even for persons without
life insurance. It explains that in certain cases, persons
with AIDS who do not have life insurance can legally obtain
it, then sell the policy for cash to live on or to pay
medical expenses.

[More importantly, it explains that "viatication" -- the sale
of a life insurance policy to investors -- is often not the
best way to obtain cash from the policy. Often the best way
is a loan from close friends or relatives, whose interests
are protected by naming them as beneficiary of the policy;
this can be done even if the lenders have property but not
cash, through a special "reverse mortgage" program run by the
Federal Government.

[This article is unusual for AIDS TREATMENT NEWS, which
focuses on increasing one's chances of surviving the
epidemic, and therefore has had little coverage on "living
benefits," or ways to obtain life-insurance payments before
instead of after death. But when we mentioned living benefits
in Issue #173 (April 23, 1993), over 100 readers called the
numbers provided for more information. Clearly many people
want to know what their options are, whether or not they have
decided to obtain money from their policy. Much of the
information below is not well known, and it is important that
it be more widely available.

[Mr. McCormack is currently working on another article for
AIDS TREATMENT NEWS, on state AIDS drug assistance programs.
JSJ]

The "living benefits" movement for realizing cash from life
insurance for terminally ill patients -- especially people
with AIDS -- continues to grow. There are three major ways to
obtain cash from a life-insurance policy; yet most people
know about only one, called "viatical settlement" or
"viatication" -- which means the sale of one's life insurance
policy at a discount to an investor, who then becomes the
beneficiary and collects at one's death. This method, which
usually should be the last choice if one of the others is
available, is well known because it is heavily advertised, by
dozens of viatical companies, in gay and AIDS publications.

The preferred methods consists of a private loan against the
policy from a relative or close friend, if that is possible;
or accelerated benefits, if one's insurance company provides
that option.

Living Benefits Through Private Loans

Private loans can be made by close friends or relatives in
exchange for being named beneficiaries of one's life
insurance. Since life insurance firms allow policy holders to
continue to change beneficiaries right up until death, such
"collateral" obviously would not be honored in a bank loan,
for example. But many loved ones of the dying would trust
them not to later change beneficiaries, making the
beneficiary-naming a reliable surety between trusted
intimates. Such loans therefore avoid the viatical firms'
discounting and can make the full benefit amount available.

Another very important advantage of this private-loan method
is that loans are not taxable. But viatical settlements are
taxed under Federal and most state laws. (These laws need to
be reformed, because they tax viatical payments to terminally
ill patients who need the money for living expenses and
medical care, when they would not tax the same money if paid
after death.)

If your relatives do not have the cash for a loan, but do
have equity in their house, they can take out a special
"reverse mortgage," sponsored by the U.S. Department of
Housing and Urban Development. This special mortgage differs
from a regular one in that there is no monthly payment. Also,
the loan is not due until the property owner, their spouse,
their minor children, and adult handicapped children, no
longer live in the house. Normally, of course, the loan could
be repaid from the proceeds of the life-insurance policy,
after the borrower's death. For more information about
reverse mortgages, contact the National Center for Home
Equity Conversion, 612/953-4474; or obtain a copy of
Retirement Income on the House, from Bookmaster, 800/247-
6553, $29.45.

Accelerated Benefits

A second advantageous way to get money from insurance is
through "accelerated benefits" -- riders already in, or
sometimes added to, one's policy by the insurance company
itself. Here, one must submit medical evidence of an expected
death within six months, or one year at most. (If one's life
expectancy is longer, one must use a private loan, or
viatication, to obtain money from the policy.) If the company
is satisfied with the proof, one receives part or all of the
policy death benefit -- with the remainder, if any, paid to
one's beneficiaries. To find out whether one's insurance
company offers "accelerated benefits," see the "Annual Survey
of Accelerated Benefits," which appeared in Life Association
News, February 1993. Check with a business college library
for a copy, or order one from the National Association of
Life Underwriters, 1922 F Street NW, Washington, D.C. 20006,
202/331-6000, $6.00. For more recent information, consult the
mid-March, 1994, Source Issue of Selling Life Insurance
magazine; it is available at business libraries, or can be
ordered from Commerce Publishing Company, 330 North 4th
Street, St. Louis, MO 63702, 314/421-5445, $3.00. These
surveys are, however, only a starting point and should not be
taken as the final word, since company rules change
constantly. Have your attorney, insurance agent, financial
planner, or social worker call the national headquarters of
your insurance company for the latest details.

Viatication -- Choosing a Company

Viatication -- selling one's policy at discount to an
investor firm -- still seems to be the most widely-known way,
even if the least advantageous, of raising funds from life
insurance. There are at least 54 viatication firms in
business today, and they advertise heavily in the gay and
AIDS media; many claim to feel a special social service or
gay rights calling, and some even say they are solely
"sellers' agents." Affording Care, Inc., provides a listing
of the viatical firms and additional consumer information;
send a self-addressed stamped envelope to: Affording Care,
Inc., 429 E. 52nd Street, New York, NY 10022, 212/371-4741.
This list shows which firms have sought or secured licensure
to do business in California -- which provides some
protection, even if both you and the viatical company are
located outside of California, since it means that someone
has at least examined the paperwork of the business. (In most
states, viatical firms are not regulated at all; Kansas, New
Mexico and New York require licensure, but their standards
are not widely applied, or have only recently gone into
effect.)

The National Association of Insurance Commissioners (NAIC)
recently adopted a model regulation for states to use in
regulating viatication; for a copy, contact NAIC at Suite
1100, 120 West 12th Street, Kansas City, MO 64105, 816/842-
3600. The National Viatical Association -- a trade group --
offers some information as well; contact them at 6614 Sanger
Avenue, Suite 3, Waco, TX 76710, 817/741-9465.

What percentage of the benefit should you expect to sacrifice
as the discount for the investor? According to David Petersen
of Affording Care, "There are not set prices. Selling and
buying a policy is like selling and buying a used car. You
have to shop around and negotiate. Offers and bargains vary
widely."

Non-Profit Viatication Funding Sought

Some consumer advocates have concluded that a non-profit
viatical firm might well offer more generous payouts to the
terminally ill by eliminating the profit motive and other
high costs in the for-profit industry; to this end, start-up
funding and assistance is now being sought by The Morpheus
Fund. To support this initiative contact Robert Roehr, P.O.
Box 12199, Washington D.C. 20005, 202/234-8172.

Taxation of Money from Life Insurance

The Internal Revenue Service -- plus all state income and
capital gains tax systems, except those of California and New
York -- considers funds received from accelerated benefits
and viatication to be taxable (loans, already the most
advantageous to clients anyway, are not taxable). But on
December 15, 1992 the IRS proposed regulations to exempt most
accelerated benefits -- but not viatical payments -- from
federal taxation; it has yet to finalize this proposal. To
obtain a copy, consult that date's Federal Register in any
law library.

New Studies of Living Benefits

Congress has called for a study of living benefits' effect on
SSI and Medicaid by the Health Care Financing Administration
(HCFA) in fiscal year 1994; this study might focus on issues
like "welfare fraud." (Receiving money from insurance while
on SSI, Medicaid -- MediCal in California -- or any other
needs-based program makes one ineligible, and concealing it
is illegal. Social Security Disability Insurance (SSDI) and
Medicare are not affected, because one's wealth does not
affect eligibility for them, as it does for SSI and
Medicaid.)

The American Association of Retired Persons has just let a
contract to study living benefits. The AARP study is likely
to center on consumer issues (such as payout amounts, or
sales tactics).

The National Viatical Association is considering a survey on
the extent to which viatication has kept people off needs-
based programs, as an important argument in the struggle to
free viatical money from taxation.

It will be months -- if not a year or more -- before these
studies bear fruit. Meanwhile, the SSI and Medicaid
eligibility rules for accelerated benefits and viatication
appear in Social Security's POMS manual, Section SI 01130.300
C and D and in SSI Program Instruction No. 03-91-OSSI of
August 22, 1991; both are available at any Social Security
office.

Getting Insurance While HIV Positive

Contrary to received wisdom, it is sometimes possible for
HIV-positive persons to secure life insurance. For example,
most employers offer group life insurance, without medical
tests or questions to their employees, in amounts at least
equal to annual salary levels. What is not widely known is
that these group policies -- once the group coverage goes
into effect -- are almost always convertible, for those
leaving the job, to an individual life policy without medical
questions. One must invoke the conversion right within thirty
days of departure and pay private, "community-rated" premiums
oneself, but policies so secured can sometimes be
"accelerated" or -- with careful technical assistance from
professional advisers -- viaticated. When job searching, be
careful to make general, non-suspicious inquiries about
fringe benefits to find out about life insurance coverage;
once it is in force (and it may not have a waiting period
like some health plans do) one can resign and convert at any
time. Staff in payroll offices can be notoriously ignorant
and obstructive about life insurance conversions; get the
name of the insurance agent who sold the firm the group life
plan and contact her or him to resolve problems.

Insurance Access Advisors offers modest-fee advice about
securing job-based, convertible life insurance of over
$100,000 to HIV-positive clients who are and appear work
ready, preferably under 35 and/or with good office or word-
processing skills, and who are able to relocate, at least
temporarily. Call 212/734-0941 for details.

A few insurance agencies, among them Guarantee Insurance
Services of Richmond, Virginia, 800/245-6968, sell
"guaranteed issue" and "graded life" policies to those who
might be uninsurable on an individual basis because of poor
health. Often, however, there are two-year or three-year
waiting periods for policies to go into force. While these
policies can then be paid out in full in the case of death --
or be viaticated -- they generally offer no accelerated
benefits payouts. Mutual of Omaha and several television-
advertising "veterans" or "over-age-45" life insurance firms
also offer similar policies -- sometimes even without the
waiting periods. Face amounts are generally limited under all
these offerings to $10,000 or $20,000.

Note

A basic introduction to living benefits -- especially
viatication and its effects on taxes and on eligibility for
need-based programs -- appeared in Clearinghouse Review
magazine, April 1991. It is available at any law library, or
from the National Clearinghouse for Legal Services, 205 West
Monroe, Chicago, IL 60606, 312/263-3830, $15.