Medical activism alone can require 30-40% more income when fighting HIV. Someone with HIV has a lot of life to live - now. Having a HIV diagnosis does not mean being put out to pasture. HIV can wake us up to the projects we shelved, the dreams we shunted aside and interests we starved while we were "making a living" - items we may want to fund NOW.

Facing serious illness like HIV is like facing early retirement - but without the customary years of financial preparation. Finding sources of extra cash is crucial. But disability policies, if you're lucky enough to have one, are geared to passive patients, to the old diseases - and pay only 60-70% of gross income. Social security disability for someone in their 30s rarely goes above $750-950 a month. Literally caught short, we need to play financial catchup.

Overall Guidelines

Luckily we've evolved new financial techniques fill this shortfall by getting cash out of life insurance - by using it to secure private loans, by applying for new accelerated benefits and by selling life insurance policies. This article will focus on the latter - a process called viatication.

• Loans from a friend or family member, secured by the insurance, can be made low-cost, tax free. If this can be arranged, it's by far the best solution. But loans can stir up emotional mud; using legal help and a loan agreement can keep this business transaction separate from friendship and make it tax-free in the eyes of the IRS. Contact me for a copy of this agreement.
  
• Accelerated benefits offer the most money, but typically requires a 6-12 month life expectancy. Determining whether accelerated benefits are offered on a policy requires digging. Call the company directly; the agent may not know. Check thoroughly since this feature is brand new and clerks may have never heard of it. The IRS has regulations pending that would make accelerated benefits tax free; they are already tax free in California and New York.
  
• Viatication to a broker or viatical settlement company can provide 60-80% of a policy's value in a taxable lump sum, usually for a life expectancy of under two years.

Potential Pitfalls, Mistakes & Problems

Viatication requires hard work. It's a task equal to buying or selling a house - and there are few guidelines. Moreover it's a new industry that rewrites its rules regularly. Many have benefited; many have been short changed. Here are some pitfalls often encountered with viatical settlement companies, mistakes you might commit yourself, and hidden problems to be aware of.

Company pitfalls:

Viatication is an entrepreneurial industry in its wild west days, a mixture of professionals and rascals. The rascals try to make the process seem simple & short - and selling policies at giveaway prices may indeed take little time & effort. Beware of come-ons, low-ball offers, minimization of your tax liability--and stick with the sensitive, even-paced professionals when you come across them.

At first it seems impossible to tell one company from another. Most people have only ads to turn to. Yet there are over 50 companies available with new firms appearing monthly. First, it's difficult to tell which are brokers. Second, what brokers get is never stated (it's about 4-7%); the new viatication law in New York will require that by summer. Third, some brokers call themselves sellers' representatives - yet they get the same or higher commissions even though they often have fewer funding sources. Fourth, when you find a self-funded firm, it's impossible to check their true funding strength; only two firms are public. Contact me for the Affording Care list of firms; you'd do well to start with those which have passed California's requirements.

Once in contact, you'll find the field is rife with extravagant claims & advertising, heavy handed salesmanship, and either high-pressure or sophisticated soft sell tactics. Since all contact is by phone, it's next to impossible to check people or offices out face to face. Firms will rush applications overnight, giving prepaid return envelopes; use them. But important issues like how long they've been in business, references, brokerage commissions, preferred life expectancies and how they assess life expectancy is often unexamined.

Once applications are submitted, some firms will give estimates without evaluation of medical and insurance records - obviously a misleading tactic. Many try to skim the market, making unrealistically high offers to snag the unwary. Others may show sudden disinterest or employ wearing down delays. A few will suddenly spring management and/or hidden fees. Many firms do not pay promised amounts into a lawyer's escrow account as security that the amount will be paid; this will be required in New York by the summer. Some get people to sign open-ended "hunting license" contracts which keeps everything in limbo for 60 days or more. There have been instances were policies were locked up with brokers masquerading as self-funded who ran out of money. The attorney general in Florida has investigated such affairs; emergency legislation has been passed in Florida as a result in January 1994.

Errors of omission are equally important. Some firms will actually recommend viatication knowing full well that accelerated benefits are available, claiming (wrongly) that accelerated benefits will take longer (they're faster). There is no incentive for any firm to push accelerated benefits or to explore whether a secured loan would be both possible and a better solution. No firms will encourage sellers to solicit competitive bids; some in fact will feign disinterest if they find out they have to compete. I have been told by the three largest firms, heavy advertisers, that they won't bid on my clients because my competetive bidding arrangements would make them pay more than they typically pay out. Happily competition is alive and well for those who will seek it. Sometimes 24 hour offers & other high pressure techniques will be brought into play. Lastly, firms will rarely help applicants figure out their real cash needs or suggest splitting up a policy, cashing in only what's needed for the near future (and helping to define what that is). No firms offer to assess an applicant's overall finances to see if viatication in fact makes sense. Such an assessment is a necessary first step.

The very real income tax liability should not be disregarded. Some firms have suggested address changes as ploys to avoid taxes (impossible). Many make much of the fact that payouts are not yet reported to the IRS - not mentioning the equal fact all the IRS has to do is write 50 letters to get the names, addresses & social security numbers of payees.

Your own possible mistakes:

We also have to deal with our own lack of experience & training in viatication. This is a complex, new financial technique whose elements are changing monthly. And often we are sick, stressed out, panicked and unused to dealing with such large amounts or the tax requirements of large amounts.

A common first mistake is not considering accelerated benefits or arranging a direct private loan. We often don't examine other possible sources of income or cash. Sometimes bridge loans can solve our problems temporarily until a time when viatication is better. Almost always we haven't estimated our needs over time, developing a timeline of how often we want to viaticate. Often we viaticate as an isolated action, with no overall financial planning.

Often we cash in all our insurance or the entire policy instead of only what we need. We may cash in to buy real estate instead of considering renting or leasing; that would give us flexibility and save the policy until later. We might cash in to pay for major purchases like a car versus using long term credit. It may be better to buy on credit if disability or life insurance coverage is available on the card or loan. Worse, we may cash in to invest the proceeds, but HIV & the ups & downs of investment just don't mix.

Sometimes we apply too early & are penalized for our longer life expectancies. Or we apply too late to put the money to best advantage.

Most of us rely on ads only instead of researching the names of more companies. We go it alone, with no checking around, no negotiator, no advice, no checking with those who've done it. We don't evaluate companies before applying, apply to only a few companies resulting in too few offers to get companies to compete. And we often over-respond to reassuring salespeople whose only loyalty is their sales commission.

Once engaged in the process, we put too much emphasis on short-term speed vs taking the time necessary to get all bids in and to negotiate a good offer. We often show reluctance to maintain hard-ball negotiation tactics, at times relying on percentages and forgetting that large sums are at stake. We at times lack the awareness that it is in fact a sellers market. We sometimes dislike, disapprove of, are inexperienced in or are simply not up to the intricacies of bazaar (also often bizarre) type bidding. And this often results in our premature acceptance of offers before bidding interest is over.

When we do get an offer, some of us go into panic at receiving the all-too-legal contract, signing over the policy. A few of us bring well-meaning and fearful relatives into the act at the last minute, messing up the deal. Most of us do not seek legal review. Nor do we require payment of the money to an escrow agent before we sign things over. We may not research our very real tax liability, not seeing how it could impact the people we love later on. In eagerness, we often get one lump sum now instead of spreading payments over time to lower taxes. Worse, we receive funds directly when it could endanger our Medicaid/SSI benefits.

Hidden problems:

If company pitfalls & personal mistakes were not enough, there are subtle factors that can compromise a sale. Starting with confusing, uninformed or often moralistic attitudes of well-meaning friends, a seller also faces a scarcity of trained, experienced professionals. Because this process is new and because it deals with arcane issues of money and life expectancy, there is general misunderstanding of the basic economic tradeoffs in viatication.

Add to this all the unknowns: not knowing the unstated groundrules of the industry, all the creative ways of splitting a policy up, whether or not the policy is highly saleable or problematic, who all the potential buyers are, who's a broker, who's self-funded, or who does both, where conflicts of interest exist, when "benefit advocate" or "viator representative" actually means broker.

Further problems are caused by lack of standardization and widely differing levels of expertise among company staffs. Some companies require extensive research & review of a policy; some are strictly seat of the pants operations.

Take medical evaluations alone: some do it inhouse, some use a consultant while others use second opinions. Some medical forms ask no questions; others require detailled analyses of medical condition. With some companies there is an overreliance on gross measurable indicators like t-cells; others take into account far more subtle measures & patterns.

Further time gets lost because physician offices are either unused to the records requirements of viatication or because they put a low priority on paperwork. Specific problems here can include: medical records department copying & statement delays, obstruction due to physician attitudes that viatication is wrong, physician reluctance to put low life expectancy estimates in writing, physician reticence on forms being interpreted as higher life expectancy, and extraordinarily high fees charged by physicians for records and filling out forms.

Commercial practices can impact offers greatly. Some companies are new and eager for business; there are unpredictable flows of funds into the market when offers are generous and periods of fussiness. Some firms are mission driven and will give a break; others are purely mercenary. Behind the scene are sometimes breaches of confidentiality and wholesale peddling of policies unless preventive measures are taken. Target sales quotas and target profit margins seem to vary widely. Some firms seek people with longer life expectancies; some claim to have specially designated funds for these cases.

The policy itself adds extensive unpredictability which can suddenly string out the process. There may be: restrictions on the ability to make irrevocable assignment, a lack of disability waiver of premium, the possibility the sponsoring group may drop its overall coverage, complications in converting from group to individual coverage, and substantial insurance company delays in processing policy analyses.

Preventive Measures You Can Take

Overall, the best recommendation is put time and effort into this important action. This is equal in complexity to the sale or purchase of a house. Be wary, question, reflect, think through. Attend the Affording Care seminar given for Body Positive. Evaluate your overall financial position. If you have Medicaid or SSI, determine first if payments can disrupt benefits. Seek professional help to prevent this. Determine whether accelerated benefits are possible. Explore arranging a secured loan with a friend or family member.

Get the list of all fifty companies. Decide whether to use a broker or self-funded company. Ask companies pointedly whether they are brokers, self-funded or both. Apply to enough companies depending on the complexity of the situation so you'll get competing offers.

Give 6-10 weeks to the process to allow for glitches and to keep stress down. Refuse to be rushed or pressured on offers. Improve your negotiation skills and/or get a third party to negotiate. Pay taxes to avoid later problems for you--or your heirs. Replace your life insurance legally (you can).

Given the amounts at stake and the complexity, it's probably better not to viaticate alone. While there is no category in the yellow pages for viatical settlement firms, it is possible to employ old-fashioned buyer-beware consumerism by checking with peers, professionals, and continually reflecting on your own direct experience.

It's important that whoever handles the process should know with how this industry operates, have some training, have sufficient experience and be paid only by you. Simple errors can cost thousands (like inadvertently using a broker); a few percentage points can generate thousands; a messup can cause weeks of high stress. Assistance can be in the form of administrative, psychological, technical, and business support. Evaluate the cost of extra help by what it might bring in extra value & less stress.

Here's where you may need help, whatever the source: to judge the appropriateness of viatication now in light of your overall finances; to determine whether alternatives, loans, or accelerated benefits are possible; to profile major firms and identify reasons for applying to each one; to supply a standardized application form to efficiently allow enough bidders; to know what to submit with the application that will shortcut delays & waits; to supply a standardized medical evaluation questionnaire, saving time and money; to train your physician in the impact of wording on these questionnaires; to supply a standardized insurance questionnaire, avoiding administrative delays; to synchronize bidders so all bids are received together; to orchestrate a bidding process that is fair enough to keep bidders interested; to know when to stop the bidding process before interest is worn out.

Results You Can Expect

My purpose here is to get across one simple message: prudence, caution, care - treating viatication like the valuable and tricky process it is.

What can you expect? Hopefully, a better chance at a maximum offer for reasonable effort, a predictable process, less harmful stress, fewer unhappy surprises, and fewer opportunities lost.

You may be considering viatication because it's the most publicized technique in handling personal finances & HIV. It would be wise to look at the many other techniques in this area before irrevocably cashing in your insurance at a discount.