Regulating Viatical Settlements: Is the Invisible Hand Picking the Pockets of the Terminally Ill?

The newly emerging viatical settlement industry has attracted considerable attention from both insurance regulators and advocates for the terminally ill. In a viatical settlement, a terminally ill person names a viatical settlement company as beneficiary under his life insurance policy in exchange for an immediate lump-sum cash payment of less than face value of the policy. To date, viatical settlement payments to people with AIDS (PWAs) have been disturbingly low as a percentage of the face value of PWA policies. This Note examines the few enacted viatical settlement regulations and the National Association of Insurance Commissioners’ model regulations as they particularly relate to PWAs). Acknowledging the importance of viatical settlements as a source of income for financially-strapped PWAs, this Note argues for a regulatory scheme in which PWAs receive greater protections and higher payouts than they receive in the current unregulated market, while still allowing viatical companies a reasonable return commensurate with the actual risks and costs of the viatical business. Part I argues that consumer protection rationales justify licensing and disclosure regulations. Part II explores controversial proposals for minimum payout regulations of viatical settlement providers and concludes that such regulations, if carefully crafted, are warranted. Finally, Part III examines the advent of accelerated benefits provisions in life insurance policies as alternatives to viatical settlements.