Viatical derivatives, as can all derivative discussions, be very complicated. OTC or Over the Counter derivatives are actually traded between two parties without the benefit of an exchange. An exchange traded derivative is traded as that, on an exchange and this is what the SEC thinks should happen to viaticals, to be traded as securities. STOLI’s or Stranger Owned Life Insurance is really the culprit that triggered this idea, since in the beginning, for instance, seniors were rounded up and told they could get free life insurance and get paid for it too!
Viatical derivatives or any derivatives can be a very complicated issue. They involve hedging and speculation and can involve big wins and big losses. The types are: Swaps (credit defaults), Forwards (contracts to buy or sell), Futures Options (the right to sell something that is not yours). The appeal of derivatives is a potential large profit and the ability to transfer any liability from one person to another. Basically, as in the case with viatical derivatives, they can be used to acquire risk, rather than insure or hedge against it.
So viatical derivatives would be for individuals (and institutions) to enter into a contract for speculating on the value of the underlying asset (the life insurance policy). These investors want to be able to buy into an asset for a low price when they expect the future market price of the asset will be high. Or, to sell it in the future at a high price when the market price is low. So now, because of STOLI’s, could viaticals and settlements be regulated as securities? That remains to be seen, but I don’t see it coming soon. To learn more about life settlements and how they may benefit you click on LIVEpdq today to fill out a short questionnaire.