Victor Lansdown is accustomed to being called a vulture. It is an occupational hazard for those who make a living when other people die. As president of Life Source and Associates Corp., an eight-month-old firm that operates from the second floor of a downtown Montreal office building, Lansdown buys life insurance policies from terminally ill people—primarily those with AIDS—for between 50 and 85 per cent of their face value. The actual amount is based on the client’s life expectancy: the less time they have to live, the more money they receive. And when they die, their insurance benefits go to Lansdown and the group of investors who put up money to buy the policies. Some might consider it a macabre line of work, but the transplanted Torontonian prefers to emphasize the humanitarian side. “It’s a business, but I look at it as a way of helping people, too,” says Lansdown, 40. “I can sleep at night.”
Not everyone is so untroubled, however, about the ethics of socalled viatical settlements. (The term comes from the Latin word viaticum, which means money provided for a long journey.) Even leaders in the AIDS community are torn by the issue. “On the one hand, viatical companies are like 20th-century vampires,” says Russell Armstrong, executive director of the Canadian AIDS Society in Ottawa. “But on the other hand, they fill a need.”
And the demand is growing. In the United States, where financial planners pioneered viatical settlements in the late 1980s, the “death futures” business is booming, driven in large part by the AIDS crisis. Sales are expected to reach $1.4 billion by the year 2000. In Canada, Depression-era laws in six provinces prohibit the sale of insurance policies to third parties. But in Nova Scotia, New Brunswick, Quebec and Saskatchewan, investors will spend up to $10 million this year to buy life insurance policies from dying Canadians, estimates John Jordan, a financial consultant who studied the industry for Ontario’s Ministry of Health. Meanwhile, Ontario firms such as Universal Settlements International Inc. are defying that province’s securities commission by helping investors buy life insurance policies belonging to terminally ill Americans. “We even have a minister investing right now,” says company president Derek O’Brien, a former financial planner and insurance salesman.
O’Brien and his competitors are pushing hard to open up the potentially rich Ontario market, home to 40 per cent of all AIDS cases in Canada. They scored a major breakthrough last year when Jordan’s report to the health ministry and a government committee set
up to trim provincial regulations both recommended the legalization of viatical settlements, provided rules are in place to protect the terminally ill. Ontario’s Progressive Conservative government has yet to act on the recommendations. “There’s a lot of people who are reduced to almost penury because of an inability to cope with their medical bills,” says Frank Sheehan, the Tory MPP who chaired the committee. “If you’ve got an insurance policy, why should you not be able to collect on it?”
For budget-slashing politicians, the viatical industry offers tangible benefits. Sheehan’s report notes that it could generate “substantial savings by avoiding public assistance for patients unable to work.” The prospect of reduced welfare and Medicaid costs persuaded U.S. Republicans last August to support a new healthcare law that makes most viatical settlements tax-free.
With an estimated 40 million Americans not covered by health insurance, the United States is fertile ground for the viatical business. Canada’s system of government health insurance makes it a relatively less attractive market. But the fact that some AIDS patients in this country are selling their life insurance policies is proof, in some eyes, of how much the health-care system has deteriorated. “There are some big holes in the system,” says Armstrong.
Besides calling for increased government assistance, AIDS advocates say that insurance companies should be doing more to meet the financial needs of terminally ill policyholders. Many insurance companies will loan dying clients up to 50 per cent of the value of their insurance policy at competitive interest rates—a service known as living benefits. But the loans are usually capped at $50,000 and are only made available to clients with a year or less to live. Critics say there is no incentive for the industry to loosen its purse strings because it currently makes money from lapsed policies. Terminally ill people, faced with the financial burden of poor health, are among the first to stop paying their life insurance premiums, creating a windfall for insurance companies.
Those who actually suffer from AIDS, cancer and other terminal illnesses say they should at least have the option of negotiating viatical settlements.“It certainly did help me,” says Mitch Latour, a former communications specialist with the Canadian Armed Forces. Latour, 41, first suspected he had AIDS when he noticed cancer-like lesions on his skin in 1991. “I’m not going to say I’m rich, but I don’t have the financial stress I did have.” Last summer, Life Source and Associates paid the Halifax-area resident 53 per cent of the value of his policy. Latour, who prefers not to disclose the specific amount, says he has no regrets. Struggling to make payments on $30,000 in debts, Latour asked two banks for a consolidation loan, but was turned down because of his illness. His insurance company, he says, was willing to discuss living benefits, but he could not find a doctor willing to estimate his life expectancy.
In return for the money from Life Source, Latour had to promise to pay his premiums for the next five years and to provide updates on his condition every two years. Besides using the money to pay off his debts, he bought his ex-wife a car, helped his mother purchase a home and set aside money for his son’s education. “I didn’t
get the money just to be selfish,” he says. “If I can do some good, why not do it now while I’m still alive?” Ray Arseneault, an AIDS patient in Vancouver, says his viatical settlement helped him feel more in control of his life. Last December, the former federal government chemist signed a deal with Lansdown to sell his $25,000 policy for $15,000. “This is sort of like the stock market, except in this business the investors are betting I’ll be dead in two years,” says Arseneault, 45. “But now that the deal has been done, I’m serving notice that I’m going to live as long as possible.” The signs are encouraging. Arseneault is gaining weight and is confident he will last longer than doctors expected.
Mark McNab, a former Torontonian who has AIDS and now lives in Palm Springs, Calif., says that many people there with the disease shop their policies around to six or more companies in search of the highest offer. “It’s a competitive business down here,” says the 43-year-old former real estate agent.
But the viatical free-for-all in the United States has also led to violations of patient confidentiality, as brokers seek to assure investors that the sellers of policies are grave-
ly ill. In some cases, Jordan says, in-
vestors have even phoned patients to enquire about their condition. Such abuses have prompted calls for regulation, and so far 20 states have acted. The Ontario Securities Commission, meanwhile, issued a notice last August declaring that it considers many viatical settlements to be a form of security—and therefore subject to disclosure requirements that are designed to protect investors. The provision, however, has not yet been enforced. “We’re saying this is the law—
you disagree with it at your own risk,” says Julia Dublin, an OSC lawyer. “If you’re selling without a prospectus, you’re subject to fines and imprisonment.” So far, those warnings appear to have had no impact. O’Brien of Universal Settlements, for example, agrees the industry should be regulated, but flatly rejects the idea that firms such as his should be subject to securities laws. He says that it would be too costly to publish prospectuses
and that such regulations would delay payments to the terminally ill. For investors, viaticáis are not without risk. New medications are prolonging the lives of many AIDS patients—so much so that some companies have decided to get out of the business. After scientists announced
several breakthroughs at last summer’s Vancouver AIDS conference, one of the largest U.S. viatical firms, Dignity Partners Inc. of San Francisco, said it would no longer arrange settlements for people with AIDS and HIV. Other such companies are attempting to reduce their reliance on AIDS by targeting other terminal illnesses. ‘We’ve done a few cancers, one Lou Gehrig’s disease and one heart disease,” says Lansdown. ‘You look at cancer—it’s more predictable now.” Even if researchers do find a cure for AIDS, people will still be dying of other diseases. And in the viatical industry, that is definitely good for business. □
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