Magazine article American Banker

Bank Push Planned for Securities Based on Life Policies for Gravely Ill

Magazine article American Banker

Bank Push Planned for Securities Based on Life Policies for Gravely Ill

Article excerpt

A company that buys life insurance policies from the terminally ill hopes to sell investments backed by these policies through banks.

Dedicated Resources, Delray Beach, Fla., buys and resells shares of so- called viatical settlements. Under these settlements, investors buy policies for less than the face value, enabling policyholders to collect death benefits before they die.

Currently, the company sells the investments through financial planners, life insurance agents, and directly to wealthy people. But Dedicated recently hired Alan Blank, president of Midwood Financial Services, an Encino, Calif.-based wholesaler, to pitch the product to banks.

Bank customers are a good target for viatical settlements because the investment has a predictable return, said Michael Zadoff, president of Dedicated Resources. He says the stability of the investment is likely to appeal to bank investors.

"It's probably the lowest risk out there other than a government bond," Mr. Zadoff said.

Before 1988, the arcane world of viatical settlements was a cottage industry, with a small market of sophisticated investors. But the proliferation of AIDS deaths in the late 1980s spurred the viatical settlement market, which Mr. Zadoff estimates at between $700 million and $800 million a year.

The product became more marketable last year thanks to legislation that eliminated income tax on the buyouts.

Because the products are not subject to federal securities regulations, they can be sold by bank platform sales staff. …

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