Alabama securities regulators are investigating a unique form of investment where the speed of the payoff depends on a macabre event: death.

The probe centers on several companies selling investments in life-insurance policies that essentially are a bet on when a terminally ill patient will die. Investigators aren't questioning whether the investment is legitimate, but whether some brokers are implying the so-called death futures have a guaranteed income stream.

"Some [investors] were told they were just as good as a certificate of deposit, which they're not because CDs are insured by the Federal Deposit Insurance Corp.," says Joseph Borg, director of the Alabama Securities Commission in Montgomery. Mr. Borg declines to name the companies under investigation.

In the insurance world, the policies are called "viaticals," a derivation of the Latin word "viaticum," meaning "provision for a journey." The transaction starts when a terminally ill person -- usually an AIDS patient -- sells his or her life-insurance policy through a middleman company. Those selling the policy typically are seeking to raise cash to pay for expensive treatments or, perhaps, a trip to Europe before dying. Usually the sellers don't have beneficiaries, according to Karl Lipinski, a peer counselor at Atlanta-based AIDS Survival Project.

The middleman company then offers the policy to an investor -- which could be an institution or individual -- with the highest bid. Investors offer between 40% and 80% for the face value of the policy after examining the seller's medical records and insurance policy, according to Benefits America, an Atlanta firm specializing in viatical sales. The longer the life expectancy of the person selling the policy, the cheaper the bid. For example, someone might bid $40,000 for a $100,000 policy for a person expected to live five years -- compared with $80,000 for someone expected to live just two years.

The payoff comes when the person dies. The new owner of the policy then receives the full value of the policy. If a person dies more quickly than expected, the investor gets an earlier payout.

The emergence of AIDS led to an explosion of sales beginning in the late 1980s. Historical numbers aren't available, but last year viatical sales reached $1 billion. There are some 100 U.S. brokers specializing in viaticals, according to the National Viatical Association in Washington, D.C.

Last year, Congress made the sales of life-insurance policies tax-free for those who are terminally ill, which generally means people expected to die within 24 months. That might have meant a huge boost -- but, at the same time, medical advances were cutting into a huge chunk of the viatical firms' market. Until two years ago, most people who sold their policies were AIDS patients. But with the advent of drugs that prolong the lives of AIDS patients, companies that acquire viaticals have had to expand their business to people with other terminal illnesses. And investors are paying less for the viaticals because AIDS patients are living longer.

Thus, the investigation in Alabama comes at a time when some brokers could be desperate to attract investors, says Mr. Borg.

By pursuing regulation of viatical sales in Alabama, Mr. Borg concedes he is testing the current legal envelope. In 1997, a federal judge in Washington, D.C., ruled that viaticals aren't securities, and thus the federal Securities and Exchange Commission had no jurisdiction over them. SEC officials say they are monitoring viatical sales. Mr. Borg argues that the ruling isn't binding on Alabama securities sales.

In his investigation, Mr. Borg says several companies have misrepresented the way the sale of viaticals works, implying they have a set period of time for payment, much like CDs.

But, Mr. Borg says, "if the guy gets the magical cocktail [a combination of drugs that prolongs the life of AIDS patients], then obviously the value of your investment just went down the tubes."

Firms that buy viaticals don't see them as a bet on death. In Atlanta, Bryan Freeman founded Benefits America Inc. in 1989 to specialize in the sale of viaticals.

"Back then, people did call me everything from bloodsucker to you name it," he says. But, he adds, "it's gratifying to be able to help somebody" with the cash from the sale of a policy.

And Mr. Freeman, who says about 75 people a month visit his office seeking to sell their policies, says investors should realize that viaticals aren't a sure-fire bet. "Any doctor will tell you that you can't guarantee a life expectancy," he says.