Yes, there is such a thing as viatical settlement fraud. Just like any other legitimate industry, when the settlement market first began, the scheemers took notice. Back when a savvy investor happened upon an insured that had been diagnosed with a terminal illness, the investor offered to pay the insured a certain percent of the death benefit in cash in advance of the insured’s death. This provided the insured with immediate dollars to take care of financial issues prior to death. The settlement industry was born. And as the market has matured with self-regulatory associations and marketing machines, international institutions came to the table with muliti-million dollar portfolios. But, also came the viatical settlement fraud.
Below are just a few viatical settlement fraud tactics to be aware of.
Clean-sheeting – This happens when an insured who has a life-threatening illness applies for new life insurance but does not disclose to adverse health conditions on their application. To some extent and considering the amount of money in play, unscrupulous doctors have participated in burying medical information to help the insured get a better policy than they otherwise could.
Dirty-sheeting – This type of viatical settlement fraud is when a healthy person tries to sell their policy and tells the buyer that they have a life threatening illness. The risk here is on the potential buyer.
STOLI – Stranger Owned Life Insurance – This viatical settlement fraud is the tactic of an unknown individual who offers to pay a lump sum of cash to an older senior just for having them apply for a new life insurance policy. After the policy is issued, the senior changes the beneficiary over to the stranger. After a couple of years, the stranger then sells the policy on the settlement market for a huge return. Most insurance companies have tightened their rules when it comes to strangers owning policies on people they have no insurable interest in. It most of these scams, the insurance companies have denied claims and begun legal proceedings against these strangers.
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