San Diego — "Let's say you figure the guy is going to live two years," says Ted Martin. "Here's the way a breakdown would work: You take his $100,000 [life insurance] policy. You're going to pay the guy, say, $50,000 for it, okay? You're going to pay the broker 10 percent of the face value, which is $10,000. So the investor would then come in with $60,000. Then when the person dies in, say, an average of two years, that investor of $60,000 would receive $100,000 [from the insurance company on the policy he has acquired]. So that's a $40,000 gain in two years for a $60,000 investment. That's a pretty healthy percentage. It's an investor's paradise."

Martin sits chewing his breakfast at a morning eatery. He looks to be in his 40s, a nubbly, cherry-cheeked guy with bright almond eyes and a quick laugh. He has spent part of his life in the Coast Guard, part in the funeral industry.

Now he's starting up his own "viatical settlement" company after leaving a similar San Diego-based corporation. Martin specializes in buying life insurance policies from terminal AIDS patients who need the cash before they die, not after. " 'Viatical' is Greek," says Martin. "It means 'preparation for a final journey.' " And with two million Americans being diagnosed with terminal illnesses every year, he says the viatical industry has a bright future.

"It's kind of like buying and selling real estate; it's a guaranteed item. You know the guy's going to die. You know he's got an insurance policy. And as long as the premiums are paid, the only thing you've got to worry about is when the guy [is going to] die." Martin says he has personally bought "over a hundred" life policies from dying aids patients. "But [now] I only have, like, half a dozen, and there are about four of them that haven't come through. I always bought short-termers. People that I knew were almost in a hospice situation. But I have one guy who was in a hospice situation that, he's now working full-time. So I've kind of taken the shorts on that one. I understand it. It's a gamble. Back in the good old days, a guy would come [with] a $100,000 policy, we'd pay him $75,000, and he'd die in six months. And we'd make $25,000 on a six-month investment of $75,000. That's one third. That's a pretty good return." But hold it. These are real people's lives here. Not investments. Is it as ghoulish as it sounds? "It's definitely a good deal [for the patient]. If you can relieve the stress from that person, it does so much good. I can't recall how many times I've had a policy of, say, a couple of hundred thousand dollars. You end up paying the guy $100,000 for the policy. He's never had that much money in his life. He doesn't have to worry about bills. He doesn't know what to do with it. A lot of times they go crazy with it, and they blow it all. They blow it in six months. Or then you get the other guys who really make it work for them."

The viatical idea came to Martin when he was a funeral director. "People just kept coming to me and saying, 'I wish I had the money today that I'll have when I die.' You hear that hundreds of times, and bells start ringing and whistles start blowing. So I actually funded some people some money and made the exchange myself. And after one of those, well, the guy died, and it paid off and went pretty smoothly, [so I] did it again. And then you start thinking, 'Maybe there's something to this.' "

"Ghoulish?" says Cale "Kit" Carson, who started Life Benefactors, the biggest viatical company in San Diego. "No way. If this is done correctly, it will be a win-win situation for both parties. By no means is it ghoulish. In fact it's just the opposite. We are providing people with an opportunity and an option that did not exist a couple of years ago. Really what happens is that people tend to live longer because the financial pressure has been taken off them."

Leon Chartarifsky got the idea when he was in the hospital himself. He was in a car that was hit by a train in Cardiff. It left him with serious head and kidney injuries. "At the time I was recovering, a dying cancer patient approached me in the hospital and asked if there was any way he could get money from his life policy while he was still alive. But life insurance pays only when the people die. People need money the most when they are suffering the most. So I got this idea. When I got out of the hospital I said [to my wife], 'I'm going to put life back into life insurance!'"

So Chartarifsky started National Funds for Life in Solana Beach, even though he ended up not helping patients like his cancer-suffering friend. "We only take aids patients. We don't deal with any other patients because we don't have any doctors that can tell us about [the life expectancies of patients with] other diseases."

Yet today the date-of-death prognosis for aids is changing. 1996 brought stunning news of brightening fortunes for aids sufferers, with innovations like protease inhibitors, which could spell the death of many viatical companies.

County epidemiologist Michelle Ginsberg's statistics tell the tale dramatically. "Just looking at the case fatality rates three years after diagnosis," she says, "48 percent of individuals who were diagnosed between January to June 1993 had died by November '95. Just a year later, November 1996, the case fatality rate of people diagnosed from January to June of 1994 is down to 37 percent."

Last December in Mission Valley, Being Alive, an aids social assistance organization, held its first ever "Back to Work" symposium for hiv and aids patients now stabilized enough to be considered chronic and able to return to the work force. Which means that for some aids sufferers who sold their insurance for instant money at a time when their prognosis was almost certain, the new landscape is hopeful - but also frightening.

"They gave me two years," says Brian, 36, who asked only to be identified by his first name. "My T-cells were zero. I was insured for $100,000. They gave me $56,000. That was three years ago. In the last four months, my T-cells have gone up to 200."

The money did help Brian. He bought a car. But now most of it is gone. And he's not at all sure that the miracle cure has arrived. "The protease inhibitors are great, but they're not a life-saver. I'm still feeling bad. I feel the strain of all the medications on my organs. It's too short-term to know how long they will be good."

Yet the viatical industry is already feeling the effects of the new aids landscape. "Our rules have changed," says Chartarifsky. "There was a time we used to think a patient was going to live one year. Now that these patients are living longer we take a look more on the physical aspect of the patient. Our doctors take a closer look at their records because the expectation is longer."

The result is aids patients are being offered less for their policies. Also, says Martin, investors should think 15 percent return, not 40-50 percent like the old days. And, he says, they should watch out.

"There are a lot of shysters out there who will find somebody who's got two or three million dollars to invest and they'll put his money into policies - match him with clients - and it's not going to come true. The guy's not going to die. Meanwhile, the broker's [already] taken his percentage off the top - about 10 percent. So you do a $100,000 transaction, that's a quick ten grand...."

For Chartarifsky, who himself has suffered five heart attacks in the past year, this seems a good time to close down with a clear conscience. "I'm happy to learn that 80 percent of the [insurance] companies whom I deal with are now offering the same thing [as viaticals] directly to the patients. Even though they're stricter - the client usually has to have six months maximum [to live] or perhaps one year - my service, which I thought would go on forever, won't be necessary. I'm happy to bow out."

"Kit" Carson is staying in. He sees a coming bonanza: cancer and heart illnesses. Doctors, he says, can now give more accurate prognoses of life expectancy in these areas. aids, after all, causes only 2 percent of deaths in the U.S. Heart attacks and cancer cause the great majority among the two million Americans who die each year. Getting viaticals accepted in the heart-cancer community is Carson's top priority. But Ted Martin is not so sure. "With cancer you're looking at a different mentality. You're not dealing in the yuppie lifestyle yet [like with aids. With heart and cancer], you're dealing with the old school. Their morality is that when you take out an insurance policy on your life, 'That's not meant for me. That's meant for my family.' "

And, Martin says, if his own experience is anything to go by, the heart is the worst of all to be involved with.

"I had a guy [with a heart condition] come to me with a $500,000 policy. I thought, 'Ooh! This is nice.' And the guy was on his deathbed. He'd got, like, four months to live. We found an investor to go in there and pay the guy a huge amount of money for the damned thing. $375,000. What did the guy do? He went out and bought a new heart! That was half a dozen years ago. He's still alive and kicking."