If you've decided to get cash out of your life insurance your bottom line focus should be on how to get a fair deal from a viatical settlement company.

Viatication - getting cash by selling the rights to your life insurance - is new, a byproduct of AIDS. What is this wild west industry? And how can you get fair treatment?

The answer is knowledge - knowing who the players are and how they play this new game. To be a greenhorn in this industry is to lose big.

Some figures indicate this strongly. Here are the low and high figures for offers given the last ten people I've helped: 13-56.4%, 20-63%, 65-80%, 68-75%, 70-79%, 70-80%, 70-83.5%, 75-82%, 75-84.9%, 76-82%. Keep in mind that these results occurred after a careful preselection of only companies with their own funds judged appropriate to the type of medical condition and policy presented.

What story do these figures tell? What lessons do they give?

First, with this degree of variation it makes sense to apply to at least several companies. Offers are either higher or get increased when companies know they're competing. Be wary. Deal with companies that have their own funds. Insist on companies that have at least applied for regulation by California or New York. (For a list of all 50+ companies in the industry, write the author.)

Second, people at many stages of HIV can viaticate. Most of the industry focuses on people whom they give a 1-2 year life expectancy which they tend to equate with 60-80% offers and t-cell counts up to 250. A few companies consider people with t-cell counts 300-400. (Remember: these figures are estimates that vary with the market.) As more money becomes available, interest in these cases rises; as interest rates rise, interest wanes. Most companies want people who will die predictably. Yet it might be better to get the money early enough to enhance the capacity to live.

Third, not all policies are alike. Only policies held two years or more are considered. Few companies like policies under $25,000. Group policies obtained through work can be exceedingly long or at times impossible to viaticate. [Some companies insist that people be on disability with premiums paid under a disability waiver of premium provision. Other companies insist that group policies be converted to individual coverage - even though these carry high premiums.] If you have a group policy ask companies to review it before you need to viaticate it.

Fourth, the viatication process can be long and complex. Ironically one of the biggest stumbling blocks is the physician's office. Some doctors disapprove or misunderstand viatication; most balk at the administrative load. Tell your doctor what you're doing. S/he's going to have to estimate life expectancy for you; make it clear you won't take it as a prescription. If you pave the way for companies to easily get medical records & questionnaires answered fast that can speed up the process and impact your offer.

Fifth, managing the process well can pay off handsomely. Yet going through a broker may simply deduct a 4-8% commission from your bottom line. Clearly ask whether a company is a broker or self-funded; if they're a broker, ask how much commission they get. In New York, commissions must be disclosed but it is a common practice to brush over this important fact. You may wish to hire someone experienced to manage the process & negotiate the offer; they're usually paid by the hour without regard to the outcome.

Sixth, negotiation is where it's at. This is as important a decision as selling real estate. Fight the urge to overly trust or to treat proceeds as funny money. It can help to have an advocate (friend or professional) deal with the companies at offer time but they should have some experience at negotiation and know industry practices. Keep in mind that brokers may have an incentive to steer business to firms that pay them higher commissions or to short-change the competetive process

Seventh, protection is key. Make sure your money is in the hands of an escrow agent, the bank account of a neutral lawyer, before you sign over your rights. Regulated states require the use of escrow agents.

Eighth, preparation can save time. Notify beneficiaries they'll have to sign off on what you're doing. Or change beneficiaries. Make sure you have a complete copy of the policy and all past correspondence. Get support for filling out the application forms; they're lengthy, intrusive and for many an unwelcome moment of truth.

Ninth, viatical benefits are taxable and can upset government benefits if they require low income or assets. In some cases you can transfer ownership of the policy to a friend or a trust. In others you can close out your case while you receive and spend the money. There may be unavoidable impacts on Medicaid. Seek qualified advice.

Income from viatication is taxable federally but tax-free in California and New York. At this time no viatical settlement firm issues a 1099 form that reports the income to the IRS. The tax is still owed, however. You may owe estimated taxes. In the event of non-payment detected later, interest will accrue; penalties may be assessed; and the IRS can overturn wills and go after heirs.

Tenth, there are very attractive alternatives to viatication. Accelerated benefits are more widely available (see sidebar). This will force viatical firms to offer a wider range of offers to people with longer life expectancies.

At the high end of life expectancy, one company, Life Entitlements, now offers an installment plan (outside New York only): a lump sum plus quarterly installments for several years. The installments stop if the person dies.

Life Entitlements and Lifetime Options offer buy-back agreements for much healthier people with HIV. Although they may be able to offer only 20 cents on the dollar under these contracts they will pay out the remainder as a death benefit (charging interest on the loan and an administrative fee).

Innovations like these should eliminate unsavory industry practices such as low-ball offers, limited-time offers, hidden management fees, and seeking funding only after the policy is signed over.

An second alternative to viatication is arranging with family or a friend to use the insurance as collateral for a private loan. The lender is named beneficiary; interest is charged - making the loan tax-free, paid back out of the insurance. While good in theory, very few people have done this.

Lastly, other techniques may solve financial problems more directly. Better medical coverage can often be arranged. Credit balances may be covered by credit disability or life insurance. Creditors will often negotiate very low payment plans or forgive balances once disability is the only income (because it is often exempt from claims). Student loans are usuallly forgiven once disability is granted. Disability benefits can sometimes can be made tax-free. New employment can create new sources of life insurance and supply missing benefits.

The financial challenges of HIV require new tools. Viatical settlement is but one of them: new, complex - and valuable.