Working of Viatical Investments:

Investing in a Viatical is not a one day job. In the process of selling the policy, initially the medical health condition of the ill person is scanned and an estimate is made about how long the person will live. The Viatical Settlement Company then collects funds from private sources or from investors of the company, who decide the time limit for which they would like to invest their money with the company. The longer time they invest, the higher their estimated returns will be. The company then purchases the insurance policy of the viator and becomes the beneficiary of his policy. If you as an investor have invested in a company dealing in these investments, you should receive some sort of notice which shall indicate your ownership. You should also receive some minimal information regarding the viator periodically. Usually the Viatical Settlement Company will keep aside sufficient funds in order to pay the premium for subsequent amount of time. If the viator dies, then the Viatical Settlement Company files a claim with the insurance company and the amount is distributed amongst the investors on the basis of percentage of per head investment. In case of the brokered approach, the company does not play a role rather a broker mediates amongst both the investor and the viator and is responsible for making the deal hassle free.

Measures to be taken before investment:

Though there are various risks involved in investing in a Viatical Settlements, if certain measures are taken before the investment is made, the returns to the investor could be substantial.

Certain risks to look out for are as follows:

1. Term Policies usually do not have a high probability of returning investments. Term policies are usually applicable to a particular time period of say 2 years. If the viator outlives the time period, you will have to renew the policy make a return on your investment. But it is possible that the viatical company may refuse to renew your policy for various reasons. You will then not be entitled to even your principal amount.
2. If you are dealing with a broker, you need to make sure that your broker is licensed with appropriate governing agencies.
3. Another common measure to be taken is with respect to the policies in the contestability period. These policies are still young and have higher chances of mistakes.  Policies are even cancelled by the insurance companies within the contestability periods if they feel that the viator has provided wrong information in his application forms. So making an investment in the policy which is still in the contestability period is not recommended since the investor can easily suffer a large loss.