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What is Viatical fraud?
Viatical Fraud committed by a few has unfortunately given the viatical and life settlement industry a big black eye. Much legislation and discussion has been devoted to the topic of viatical fraud. As a result, the incidence of viatical settlement fraud has diminished tremendously, but people should always be aware.
Viatical Fraud Rarely Affects Policy Sellers
Viatical fraud comes in several flavors which are perpetrated against consumers, life settlement providers and viatical providers and investors. However, viatical settlement fraud rarely if ever, affects life settlement policy sellers with an existing policy. The reason policy sellers are insulated from viatical fraud is inherent in the life settlement or viatical process. If a person sells their policy, the policy change occurs in an escrow account. Therefore, the policy seller is protected from viatical settlement fraud since the escrow account is funded with sale proceeds before the policy is released to the buyer.
STOLI’s Are The Most Notable Viatical Fraud
Viatical fraud has mainly centered around STOLI’s or “Stranger Originated Life Insurance”. This type of viatical fraud is also called no premium life insurance. This occurs when someone with no insurable interest takes out a life insurance policy out on a senior they don’t know, with the hope of selling it later for a profit. The reason this is considered viatical settlement fraud is that when the senior sells the policy in a life settlement they are responsible for the taxes, while the person responsible for the whole thing transaction is usually long gone with the life settlement proceeds.
Clean Sheeting Viatical Fraud by Policy Sellers
Viatical fraud can certainly be committed by knowing policy sellers. One form of viatical fraud is “clean sheeting”, when a prospective insured misrepresents their poor health as good. This is done to in turn qualify for a new life insurance policy. That life insurance policy is then sold in a life settlement. However, it is considered a form of viatical fraud since the life insurance policy was issued under false pretenses.
Dirty Sheeting Viatical Fraud by Policy Sellers
Viatical fraud can also occur by a healthy individual in a viatical settlement. In the past, some insureds would falsely claim poor health or medical conditions that didn’t exist. The goal of this “dirty sheeting” viatical settlement fraud is to generate interest and maximize offers from viatical settlement provider that might not otherwise offer or offer as much for a life insurance policy.
Viatical Settlement Fraud of Investors
Viatical settlement fraud also is committed against life settlement investors. This occurs more with small groups of investors than with large financial institutions buying life insurance policies. Investors in viaticals and life settlements must always beware and reduce their risk by investing in a name or organization they trust. Life Expectancy fraud is one of the more common viatical fraud schemes against investors. This occurs when an investor is told or presented with a falsified and shortened life expectancy certificate of a potential insured. In addition, some viatical settlement fraud occurs when a viatical or life settlement provider does not have the proper regulatory authorization or licensing to solicit life settlement or viatical investors. Finally, some viatical settlement fraud has occurred as Ponzi schemes. Whereby, the investors are paid with other investor money rather than life settlement investments.