Money: A year to live and money to spend

Life insurance: People who are terminally ill can sell their policies, writes Marie Dyne

Life insurance has traditionally been taken out to provide dependents with some financial security when their loved ones die. But what if the policyholder is diagnosed with a terminal illness? It would be a comforting thought if we could offer someone the chance to live out their dreams in their last year of life.

Many terminally ill patients have problems coping with the expensive bills that often result from care and medical attention. To be able to receive some of the benefits of their life insurance policy when they need it could make what remains of their lives much easier in financial terms. And it can give them the chance to put their personal affairs in order before they die, or to fulfil long-held ambitions.

Brenda Ward and Tony Wright, featured on BBC2 recently, were in this situation. With Brenda being diagnosed as having only one year to live, they cashed in their life insurance policies and used the money to make the most of their remaining days together, travelling and buying luxuries.

Life Benefits Resources is one of the three UK companies most active in buying life insurance policies from those diagnosed with terminal illness. Known as a "viatical" settlement - taken from the word "viaticum", meaning Holy Communion given to a dying person - this process gives the policy- holder a percentage of the sum assured, usually up to 80 per cent, in return for waiving all rights to further benefits from the policy.

The percentage paid varies according to the type of policy and the life expectancy of the holder. The buyer pays the monthly premiums to the insurer and, when the original policyholder dies, the buyer collects the entire sum assured.

The market began in the United States in the 1980s due to the onset of Aids-related deaths. It acquired a controversial reputation due to the dubious methods used by some businesses, including the deliberately slow processing of applications to delay paying the policyholder.

The three companies most active in this market in the UK are Life Benefits Resources, which began operating in 1992, International Viatical Settlements, operating since 1995, and Securitised Endowment Contracts.

Richard Legg, managing director of Life Benefits Resources, thought of the idea while working for a church charity. He says: "I was seeing people who were HIV-positive in their 20s to 30s with all the hopes and aspirations of anyone at that age and with no chance to do anything about them. I looked into the American market and I did not like what I saw.

"There are only two criteria for us buying a policy - that they have a valid policy that has value and that they have a terminal illness backed by the medical profession." Life Benefits Resources buys about 49 per cent of its policies from people with Aids, 49 per cent from cancer victims and the other 2 per cent from people with other terminal illnesses.

The demand for the deals offered by these companies has highlighted a gap in the insurance market, one which life offices then rushed to fill by launching terminal illness insurance which pays outeither at death or on diagnosis.

Old critical illness policies tended to cover only certain specified illnesses, but the new policies applied regardless of the nature of the illness, as long as it was terminal and the policyholder had less than 12 months to live.

Paul Cowman, business development manager at Canada Life, said: "Insurers realised there was a need for a product that would offer cover for people who had a terminal illness."

Some terminal illness policies pay the total sum assured to the policyholder, but most pay 75 per cent, with the remaining 25 per cent being paid on death to beneficiaries nominated by the policyholder.

For further information, contact: Life Benefits Resources 0181 464 5626; International Viatical Settlements 0717 801 0887; Securitised Endowment Contracts 0181 207 1666.