SAN FRANCISCO -- A pharmacist, a gift marketer and a doctor, all suffering from AIDS and crushing medical bills, found a way to raise some quick cash.

They sold their life insurance policies.

In the last year, the high cost of dying has given rise to a new industry, pioneered by Living Benefits Inc., an Albuquerque firm that pays terminally ill patients a portion of the value of their life insurance policies in exchange for being named sole beneficiary. So far, most of those taking advantage of the option have been AIDS patients.

Spurred in part by these upstart "brokers," big insurance companies are beginning to offer similar programs. Prudential Insurance Co. of America has been the most visible, mounting an advertising campaign touting its "living-needs benefits" program for cancer and others who have less than six months to live.

Observers say the concept of selling life insurance policies -- to many, an unsavory notion -- is a sign of the growing crisis in long-term health care. It is also prompting a debate about the taboo subject of death.

Many AIDS support groups applaud the handful of entrepreneurs who buy policies, saying they give those afflicted with the impoverishing disease a chance to die with dignity.

Yet some state insurance officials and ethicists point to the potential for abuse in the unregulated business. They contend that financially strapped individuals contemplating the sale of their policies might be too ill to act in their own or potential beneficiaries' best interests.

At the very least, skeptics note that the practice gives such companies a financial stake in their clients' early deaths, the sooner to collect on lucrative policies. The industry's image was not helped when a Brooklyn man chose for his company the ghoulish name BGR International Inc., for Beat the Grim Reaper.

"Our feeling is . . . it gives people expanded options and expanded access to financial support when they really need it," said David Hansell, director of legal services for the Gay Men's Health Crisis in New York, the nation's largest AIDS service and advocacy organization. "On the other hand, we're concerned that it should not be coercive or take advantage of people's desperation."

Far from feeling exploited, a 37-year-old unemployed San Francisco pharmacist said that he was grateful to find an unusual way to tap funds.

Diagnosed in January 1988 with pneumocystis carinii pneumonia, a life-threatening respiratory ailment associated with AIDS, he sank into a deep depression. What he most wanted was a house with a garden, but he felt that his finances were too shaky to take on a bigger monthly burden than he already had with the condominium he owned.

When he suggested that his insurer cash out his policy, he was rebuffed. Then a friend gave him a brochure about Living Benefits Inc. After consulting with his parents and his accountant, he called a toll-free number and talked with Rob T. Worley, an entrepreneur whose son is a life insurance agent.

The Worleys operate out of a suite of offices in Albuquerque, buying insurance policies from people like the pharmacist. During the conversation, the pharmacist recalled, he and the elder Worley spoke of traveling, gardening and some "deep things."

Despite initial misgivings, last March the pharmacist sold his $280,000 insurance policy to Living Benefits for $151,000.

Although the Worleys say they will consider patients with 24 months or less to live, they made Clay wait until doctors certified that he had only 18 months. In the hope of avoiding lawsuits, the Worleys also ask that friends or family members who would have been beneficiaries sign waivers.

The Worleys say they generally pay 55 percent to 80 percent of a policy's face value, depending on interest rates, how much they will have to pay in premiums and how long the patient is expected to live, as determined by a panel of doctors who analyze medical records. Usually, the application process is conducted by mail and phone.

As of mid-June, the Worleys had bought or signed contracts to purchase 71 policies, for a total of $8.5 million, with an additional 69 applications pending. To date, they have cashed in $1.5 million worth of policies after the holders' deaths.

Fulfilling his dream, the pharmacist used the proceeds from his policy sale and profits from previous real estate deals to buy a modest three-bedroom home in San Francisco, complete with a hillside garden dotted with marigolds, petunias, irises and tomato plants.

"At first I thought these people must really be sleazeballs, but I said: 'He's doing me a service,' " the pharmacist said. "I had been ready to give up and die. This has given me a reason to live."

Similarly, a 38-year-old California doctor found that selling his policy was a financial godsend after he was hospitalized with AIDS.

"I used up all my savings, lost my house and declared bankruptcy," said the doctor, who had earned $300,000 a year. Now he said he makes only about $4,000 a year, most of which pays for medicine.

He recently sold $200,000 of his $800,000 in life insurance to Steven Simon, who heads American Life Resources Corp. in Miami. The doctor said he will use some of the approximately $120,000 he received to travel with his roommate and the roommate's daughter to Alaska to celebrate her sixth birthday.

A former gift marketer at a department store in Los Angeles who was diagnosed a year ago with AIDS-related cancer said he had planned to name two nieces as beneficiaries. But after racking up thousands of dollars in medical bills, he decided to sell the policies to Simon's company.

Unlike the Worleys, who buy policies and then pay the premiums with bank loans secured by their own assets, Simon said that he secures money from individual and institutional investors. He declined to name them.

Like the Worleys, Simon saw great business potential and relatively low risk in buying policies, although he contended that making money is not his only motivation.

"It's a nice mix of compassion and profits," Simon said. He acknowledged that it is too soon to tell how much he and other entrepreneurs stand to make because "it's an inexact science."

"We're hoping we'll generate 15 percent (return) before taxes," Rob Worley Sr. said about the business's profit prospects. "We don't have any idea at this time . . . If we start making more than we think is reasonable, we might pay more (for policies)."

Selling a policy, however, might not be the wisest course. For one thing, the individual could outlive the funds, leaving him or her with no recourse. It also is possible that having a large amount of cash might affect eligibility for Social Security and other benefits.

Moreover, as the law now stands, proceeds from the sale of a policy before a person's death are taxable as ordinary income, although legislation is under consideration on Capitol Hill that would make such prepayments tax-free for those with less than a year to live.

Last January, when Prudential began offering its "living-needs benefits" option, only 10 states allowed prepayment of policies; 38 states now permit it.

Prudential's plan lets policyholders have most of their benefits, minus interest that Prudential would have earned on the funds, if the holder has six months or less to live or has spent six months in a nursing home and is unlikely to leave.

Prudential has found that most of those taking advantage of its plan are suffering from cancer rather than AIDS, according to spokesman Joe Vecchione.

Like most other observers, Alvin Novick, a Yale biology professor who has long studied AIDS issues, views the selling of life insurance policies with mixed emotions. "Many (AIDS sufferers) would not have a dependent who would really need their life insurance, and it would be more important to have access (to the funds) while they were still alive," Novick said.

In Novick's view, the key to preventing abuses would be to require that the half a dozen or so companies in this new industry be regulated by state insurance authorities. So far, state regulators and advocacy agencies say they have not heard from clients who feel that they have been exploited.

Some policy sellers say they are aware of the harsh reality that qualifying for the program means -- that they are near death.

The Los Angeles gift marketer said Simon's office calls his doctor every month. "I don't need to be reminded on a monthly basis that there's somebody out there waiting for me to kick the can," he said. "It's a business . . . As wonderful as the service is, when I go, they're going to make a bundle of dough."