Benjamin Franklin once said that “In this world nothing is certain but death and taxes.”, but if he were to be alive today, I think he might have said, “death, taxes and capitalism.” I must admit that this seems to be a bit of a morbid subject, but the fact that money is made from the death of others is nothing new.

Today, death and capitalism are inseparable –from florists to overpriced caskets builders, cemetery owners, and the services of a funeral home are just a small part of the death market. There are even occupations and careers surrounding death. Tombstone craftsmen, hearse drivers, grave diggers, embalmers, morticians, coroners, and even biohazard specialists whose job is something you may not want to ponder for too long. It is a business that will never run out of clients, dead or alive.

Adding to the list of death profiteers are brokers and investors that trade in life settlements of the terminally ill. These life settlements or viaticals as they are known, are the life insurance policies of the terminally ill that are bought at a discount. The viator, receives much needed funds upfront to presumably pay for their medical expenses. In exchange, an investor in viaticals will receive the full face value amount of the insurance policy when the sick person dies.

It is a matter of personal opinion if one believes that this type of investment is morally unethical or that if it is providing a humanitarian service to people who are sick. Most investors that participate in viatical investments are attracted to the high potential returns, and the good feeling that they are helping out someone in need. Some people think it is an exploitation of the terminally ill, just waiting for them to pass away to collect a profit.

The debate can be lively, but one must also look at it from a dying person’s point of view. People looking for a lump sum from selling their insurance policy normally do not have the resources to pay for the high cost of medical treatments for illnesses like A.I.D.S or terminal cancer. They may also not want to leave a burden of thousands of dollars in medical bills to their love ones. For these people, viaticals are a good option.

Investors seeking to pursue viaticals as an alternative investment are not without risks. There have been many fraud cases involving in the selling of life settlement policies. In an extreme case, the SEC alleged one company of defrauding thousands of investors of $1 billion dollars. A high return is enticing, however, beware of unscrupulous brokers and the high risks involved.

“Viaticals contracts are legitimate products, but state securities regulators have two concerns,” says Joseph Borg, president of the North American Securities Administrators Association (NASAA) and director of the Alabama Securities Commission. “First, we’re concerned that the inherent risk of viatical investments – gambling on when someone will die – aren’t being adequately disclosed, and second, many investors have been outright defrauded by some viatical companies or their sales agents.” -NASAA

Here is a list of the common risks you take:

1. Fraud relating to both the broker and insurance policy holder resulting in the insurance company refusing payment to you. This can be in the form of less than honest brokers selling the same life settlement to multiple investors or a policy holder may have purchased a fraudulent insurance policy that becomes null and void.
2. Your investment may be tied up longer than expected because the ill person is living longer from advances in medical treatment. As the new holder of the policy, your returns will decline as you continue to pay the premiums.
3. The investment may be lost if you do not continue to pay the premium to keep it in force. This can occur when you have it lapse because the insured turns out to not be terminally ill at all.
4. There is a risk of the insurance company or viatical settlement company going out of business.
5. Legal challenges from the heirs of the deceased.

Viatical investments are a viable form of investing, but the risks are extremely high. Investors must do their homework to reduce the chances of losing money and learn about the fraudulent activities and deceptive marketing practices that are prevalent in this line of business. Check with your local state securities and exchange commission for more information about the businesses and brokers selling viaticals.

Some additional sites to get informed:

• www.nsasaa.org – North American Securities Administration Association
• www.lisassociation.org – Life Insurance Settlement Association
• www.lifesettlementinstitute.org – Life Settlement Institute