Dying offered cash-in option

IF YOU are dying of Aids or cancer and doctors say that you only have two years left to live, do you continue paying money into your life insurance policy? Or would you rather cash it in for more than 60 per cent of its value and use the money to pay for medical treatment or a trip round the world?

It is a calculation that has spawned a pounds 300m industry in the United States, as thousands of Aids victims opt to sell their life insurance. For the companies or small investors who buy the policies and wait for the former policy-holders to die, the profits can be huge.

Today, a founder of one of these US companies is on the point of starting up in Britain. 'We have received calls from terminally ill people in Britain who have seen what is available in America and want to take advantage of it,' said Steve Simon, chief executive of Living Benefits, based in California. 'We are looking for office space in London.'

The arrival of Living Benefits in Britain will start an ethical debate that has gripped the US. Many people see these companies as parasites. Others say they offer the terminally ill a chance to make the most of their lives.

What makes the debate more relevant is that Britons with more than pounds 10,000 to spare are already investing in these policies in the US. Special companies pool groups of investors, enabling them to buy parts of the policies of the terminally ill.

Investments in these policies can give a return of up to 25 per cent a year. But it can seem unscrupulous: someone has to die before an investor makes a profit, and the quicker they die the greater the profit.

Andy, aged 40, is a typical example. He has Aids and has been given two years to live. He recently sold his dollars 85,000 ( pounds 56,000) life insurance policy to a group of investors for dollars 55,000 - 64 per cent of its value. The deal allows him to pay his medical expenses and go on holiday.

The investors who bought Andy's policy cannot touch the money until he dies, then they will receive a cheque from the insurance company leaving them with a gross profit of dollars 30,000. After expenses and the payment of Andy's premium, the profit comes down to around dollars 25,000. If Andy dies within the two-year period the investors - who tend to be lawyers or film stars - will have made a profit of more than 29 per cent. But if he lives longer, the profit starts to fall. Andy said: 'For me it was just a financial transaction. They make a profit when I die, but in the meantime I have got money that I wouldn't otherwise have had.'

It is a view shared by Aids organisations, who are among the biggest supporters of this cold-blooded investment. 'The business may seem a little ghoulish but a third of the people who have Aids in America are living off just over pounds 300 a month. At least this way they get some money,' says Bill Freeman, head of the National Association for People With Aids.

Often Aids victims are forced to choose between paying their life insurance premium or buying food. As a result, more than half the life insurance policies of people with Aids lapse. Until 1988 only the insurers were benefiting, as they did not have to pay out on the death of many Aids victims.

But over here Living Benefits may find business more difficult than in the US. In Britain there is already one company that will pay the terminally ill for their policies. The company, Life Benefit Resources, aims to be non-profit-making.

It buys policies from each terminally ill person on behalf of five investors. In the last 20 months it has bought policies from 259 applicants.

Richard Legg, the managing director, commenting on Living Benefits' plans, said: 'To get money in, they have to do it in a style that will fit in with our culture.'

On average the terminally ill policy holders that sell policies through Mr Legg's company will receive about 70 per cent of their value - with a range between 55 per cent and 81 per cent. His customers are either dying of Aids or have cancer.

Another problem facing Living Benefits is that British insurance companies can contest the validity of a policy if they think that the terms have not been met or someone has lied on the application form.

In America an insurance company can only contest a policy within two years of purchase. After that they are obliged under law to pay on death. This reduces the risk for the investor.

(Photograph omitted)