Carole Fiedler, owner of Innovative Settlements in Greenbrae, obtains settlements for life insurance policy owners through a secondary market.
In April, North Bay Business Journal covered the related viatic market in a story about a Petaluma musician who invested $ 20,000 of his retirement funds, hoping for a 12% return on two life insurance policies previously held by AIDS patients. They defied their calculated life expectancy and derailed the investment.
Life insurance settlements involve policies with a life expectancy of more than 24 months; viaticum, less than 24 months.
Here, the Journal spoke with Fiedler about the similarities and differences between the viatic markets and living regulations.
How long have you been selling life settlements?
Who emerged from the AIDS epidemic?
I mainly represented people with AIDS, but it was available to people with any life-threatening illness.
Would they sell their life insurance policies for anything they could get?
Exactly. I analyze policy for buyers, companies in business specifically to buy policies. They come back to me with offers, sometimes several competing offers. I work to get the most for my client.
In a viatic settlement, would a person with a $ 100,000 life insurance policy get 60 percent on the dollar?
At the time, some states regulated amounts. It no longer holds. If someone had a life expectancy of 24 months or less, they could expect to hit 60% of the policy. If it was 12 months or less, they would get closer to 70 percent.
The shorter the life expectancy, the more money my client receives. We look at life expectancy and the cost of premiums, the cost of maintaining the policy for the rest of the life expectancy plus a cushion.
Typically, your clients wouldn’t be able to afford the premiums for their life insurance policies, or did they need a lump sum to buy drugs or something else in their life?
In the beginning, it was mainly people with AIDS. They worked and had large group life insurance policies as part of their job. Then they get that diagnosis.
It was before August 1996. We had big changes at that time. Before that they would go to the doctor and they would be told, you have AIDS, you have six months to live. So go have a good time. That’s what we told these people. They found out [viatical settlements] because these people were talking to each other and their doctors were telling them what to do.
This is why it got off so well with AIDS, not because AIDS has given us in the industry something so different. We had an opportunity. I used to get referrals from the HIV delivery coordinator in Kaiser [Permanente] San Francisco [Medical Center].
Instead of leaving money for the heirs, would they cash in the policy and use the money to go on a trip?
Yes. Unfortunately, many of these people were not close to their families. Many of my clients were gay people. Most did not have children. They had no one to abandon these great policies to.
Many bought cars. There was no condition as to what they could do with the money.
In 1996, protease inhibitors were announced.
What was the typical range of face amount – $ 100,000, $ 200,000, much more than that?
Even then, they were going up to $ 500,000 or $ 1 million. Most of them were smaller group fonts. The premiums were so low that people could get more money for them.
Was it term insurance or whole life insurance?
Employer term insurance plans?
Yes. I always do forward policies, I just handle it differently. What does my client want to do? What are your goals?
In a typical $ 200,000 policy, the policy owner would sell that at 60 percent. Would you take a commission of around 5%?
The standard viaticum commission was 6 percent of the face value of the policy [$12,000 on a $200,000 policy; $30,000 on $500,000]. A lot of people in the industry, because there was no regulatory cap fee, were taking 8 percent, 10 percent, 12 percent.
It was scandalous. It was crazy, there was so much business back then.
I would take 3 percent.
The company that manages the money, a group or an investment fund, would take how much commission?
These companies, called providers, receive their money from donors. There is a side agreement that I am not aware of. If the investor says, “I’m going to give you a $ 100 million line of credit, go buy policies; here are the parameters, ”they had a financial arrangement.