The Most Unethical Businesses and Viatical Settlements

A British website has posted its list of the “10 Most Unethical Ways to Make Money.” Like all such lists, there are some eyebrow-raising choices, both in what is included and what is not, usually attributable to the political and ideological biases of the list-makers. For example, until we have figured out a way to run civilization without oil, it is more than a bit unreasonable to declare the entire oil industry unethical, climate change or no climate change. Oil is on the list, though, while child porn, drug dealing and gambling are not. The list could be the result of a collaboration among Greenpeace and Ron Paul.

Still, most of the inclusions on the list, like blood diamonds, ivory, and sweat shops are neither surprising nor controversial. Placing one of the businesses on the list, however, qualifies as a public service. Most people have no idea what the industry is, or what is unethical about it.

That business is the viatical settlement industry, which preys on human impulsiveness and irresponsibility to make large profits. Unfortunately, the list’s brief explanation of the industry misses its most unquestionable and sinister incarnation: buying structured settlements.

You’ve seen the TV commercials for one of the viatical settlement giants, who are predictably ratcheting up their advertising as tough financial times figure to force structured settlement owners into their clutches. “I have a structured settlement, and I need cash now!” their actors croon. The structured settlements they are singing about usually involve large damages paid to grievously injured parties or their guardians as the result of medical malpractice or a personal injury. It is well known among lawyers who specialize in representing injured plaintiffs that when people receive large cash settlements in lump sums, the results are often tragic. Though the money is meant to cover living expenses and medical bills for the rest of the plaintiff’s life, individuals who are not used to handling money burn through it at astounding speed. Relatives and friends with hardships, debts and illnesses hound the newly “rich” victim, who often has to choose between protecting his or her money or becoming a pariah in their family and community.   In addition to this trap, the temptations presented to a person of modest means who suddenly has millions in the bank are irresistible. Money that is supposed to pay for long-term care and essential needs is frittered away on jewelry, vacations, or cars…or some of those unethical businesses that got left off the list of ten.

Responsible plaintiffs attorneys, recognizing this, try to convince their clients to reject lump sum payouts in favor of a structured settlement, usually funded by an annuity purchased by the defendant’s insurance company. The injured plaintiff gets regular payments that are sufficient to pay the bills, and just as important, protects his  damages against greedy relatives and his (or her) own foibles.

Once they are on their own, however, the compensated victims are targeted by viatical settlement companies, bith those with cute opera-singing commercials and those without. They undermine the sound advice of the attorneys with slogans like “It’s your money!” and try to persuade the former plaintiffs to unstructure the structured settlement by selling the annuity’s income stream to the viatical settlement company at a deep discount. Result: the annuity company gets the regular income at bargain rates, and the victims get a new, smaller lump sum to dissipate in exchange. The statistics say that the customer of the viatical settlement company will run out of cash long before he or she runs out of the need for it. But for the company, it’s a sweet deal.

It’s also despicable. The viatical settlement industry like to use lottery winnings, which are usually paid out in annuities like structured settlements, to justify their business. Lottery winning are windfall funds; while the same dissipation  hold for those lump sums (most multi-million dollar lottery winners have no money left after five years), the winners are usually no worse of after the money has been blown than they were before their number came up. When the money is a settlement for an injury, however, losing it is calamity. I would consider a viatical settlement company that only bought the income stream from lottery annuities ethical. There is no such company, however. The victims with structured settlements are a much larger and more lucrative market.

It is good to see these soulless predators placed in the same group of ethics violators along with whalers, ivory traffickers and the international arms dealers. They belong there.

13 thoughts on “The Most Unethical Businesses and Viatical Settlements

  1. I can’t stand these commercials because I know they are targeting people who are in need of a structured settlement, many of which, as you said, have a disability related to an accident or medical malpractice. Vulture, is the term that comes to mind.

  2. I should first declare my interest and say that I have given professional tax advice to a company in the “viaticals” business.

    This company, which was admittedly a smallish one focusing on a targeted market that was difficult to find without some fairly expensive legwork in advance, buys life insurance policies from people who (after buying the policies) have been diagnosed with short-term fatal diseases. There are many circumstances under which such people can neither cash in their policies nor borrow against them, but nonetheless want the choice of using “their” money to buy expensive (and therefore otherwise unavailable treatments) to prolong or ease their remaining months or years. The Internal Revenue Code (26 U.S.C. section 101(a)(2)) even has special provisions to deal with such transactions, as long as the insurance payment is the result of the death of the insured.

    Unless you believe that it is unethical for a policyholder to use the insurance proceeds for his or her own benefit rather than leave them to the named beneficiaries, it’s hard to see that an offer to purchase the viatical is ethically infirm. (I’ll leave that one to the Ethics Meister.) The difficulty here, as in so many cases, is that something that is ethical in some circumstances can quickly be turned to unethical ends by the unscrupulous.

    Incidentally, I think it’s incorrect to say the the companies “pray on human impulsiveness and irresponsibility,” which is probably a laudable activity. I don’t like it, though, when they prey.

    And while we’re on the subject, “naval gazing” is something you do through a periscope. The phrase you want is “navel gazing”, although your error proves the truth of what I have repeatedly asserted: “omphaloskepsis” is easier to spell.

  3. The list seems to find the kind of viatical purchasers you describe unethical: I agree with you. They aren’t. But the business of persuading injured plaintiffs to dissolve their structured settlements with in most cases were indeed created to preserve the money, is shark’s work. The song on TV: “I have a structured settlement and I need cash now!”

    Navel. Prey. Right. Talk about shooting fish in a barrel: correcting my spelling is like explaining why John Edwards is scum.

  4. Lottery winning are windfall funds; while the same dissipation hold for those lump sums (most multi-million dollar lottery winners have no money left after five years)

    Is there any proof of this statement?

    • There is: I actually researched the data several years ago to disprove the same claim for tort settlements, which structured settlement companies often cite. Lots of factors at play: 1) the fact that most lottery winners are lower-income, with low income families and friends 2) the winners tend not to know how to handle money 3) they tend to be preyed on by needy family members, with lots of pressure to “spread the wealth”, and 4) they do treat the money as “mad money” to some extent, spending a lot on luxuries and gifts.

  5. 1) the fact that most lottery winners are lower-income, with low income families and friends 2) the winners tend not to know how to handle money 3) they tend to be preyed on by needy family members, with lots of pressure to “spread the wealth”, and 4) they do treat the money as “mad money” to some extent, spending a lot on luxuries and gifts.

    2) and 4) are the biggest factors, I would imagine.

  6. Ethics anyone?

    I once attended a “business ethics seminar” as an undergraduate in Utah. At the time, I had just been through an ethics class covering topics from deontology to utilitarianism, to nihilism, postmodernism and more. Coming off that great intellectual experience, I remember feeling excited to discuss these different ethical propositions in the context of business affairs.
    To my great disappointment, what posed as a “business ethics seminar” was nothing more than a completely non-intellectual exercise in which students were encouraged to know existing laws and abide by them. It was completely absent of any curiosity concerning the ethical worth of our existing body of laws. No one asked: “what if the laws we abide by are unethical?”
    Obviously, that same callous mentality dominates Wall Street today, but with colder hearts and even more cutthroat tactics than I ever imagined possible. What they are proposing may be legal, but what isn’t legal in a near completely unregulated industry? And even if it is legal, and it sounds like they may need teams of lawyers to argue that it is, it seems highly improbable that any robust defense could ever be devised to show that profits accrued through the death of a human being could ever be, in any way, ethical. But don’t worry folks; these lunatics aren’t interested in arguing that their plan is “ethical”. They will rest well at night just knowing that it is “legal”.
    On a different note. When justifying out of control pay on Wall Street, the most frequent argument refers to the idea that “competing for the best and the brightest” drives ever increasing salaries. I guess this makes sense if your definition of “best and brightest” refers to a parochial money making view that never detours for any ethical consideration. In my opinion, the best and the brightest are employed in the meaningful work of making the world a better place for all concerned. Their motive isn’t money. It is goodness. Something the best and brightest on Wall Street surely consider old fashioned and unnecessary.

  7. Recently I’ve been researching viatical settlements as a potential investment and have been slowed down by ethical considerations. I recognize their genuine value for terminally ill people who need the money while they are alive to have better end-of-life choices. But I also know that these settlements can take advantage of policy holders and their heirs. An ethical broker is the solution–but I’ve had a hard time researching which companies work carefully to protect policy holders as well as purchasers. Anyone have any recommendations of thoughtful and ethical viatical brokers from a well-regulated state (I’ve found CA and NY recommended as leaders in regulating this industry). Thanks,

    • Terminally ill people are still taken advantage of, as the company takes an excessive percentage to buy their income stream. But yes, that are dying, so cheating them (and their heirs) doesn’t matter much as much. Undoing the settlements devised to protect recipients of damages designed to protect that are supposed to cover long-term medical needs are literally deadly, and evil. Poor people in poor families don’t know how to hold on to large sums of money. Annuity settlements help them; viatical settlements undue the protection, and at a profit.

      They are justly banned in some jurisdictions. A more evil legal enterprise would be hard for me to name.

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