At Trust Life Settlements, we recognize that feeling confident about your decision to sell an unwanted life insurance policy is top-of-mind. If you are like many other policy owners who are considering the options to maximize the value of unwanted life insurance policies, you want assurances that life settlements are legal and well-regulated.
We understand your concern, and we’re happy to provide you with those assurances.
The legal foundation for life settlement transactions dates back to 1911 when the U.S. Supreme Court issued a decision in Grigsby v. Russell. This court case recognized the rights of the life insurance policy owners to transfer ownership of their life insurance policies to a third party that was unrelated to the policy owner/insured and did not hold an insurable interest in the policy owner/insured. In short, this ruling provided the foundation for the secondary market for life insurance by recognizing one’s life insurance policy as personal property that can be sold or transferred, just as with any other asset.
Regarding the legitimacy of life settlements, we believe that the acceptance of life settlement transactions by leading professional organizations carries weight. As we noted in our July 31, 2017, blog article, a report issued in July 2017 by National Association of Insurance Commissioners (NAIC) considers life settlements as one option seniors might use to generate resources to pay for their long-term care (LTC) needs. By way of background, NAIC is the U.S. standard-setting and regulatory support organization created and governed by the chief insurance regulators from the 50 states, the District of Columbia and five U.S. territories. Through the NAIC, state insurance regulators establish standards and best practices, conduct peer review, and coordinate their regulatory oversight. This endorsement of life settlements by such a respected national regulatory organization will go a long way in raising awareness about life settlements, as well as elevating the confidence level that the secondary market for life insurance is a safe and efficient solution for senior consumers who want to optimize the monetary value of unwanted life insurance policies.
Concerning state regulation, most life settlement transactions fall under the scope of each state’s Department of Insurance. According to the Life Insurance Settlement Association (LISA), as of 2015, 42 states and the territory of Puerto Rico regulate life settlements, affording approximately 90 percent of the United States population protection under comprehensive life settlement laws and regulations. Of these states, 31 states have a statutorily mandated two-year waiting period before one can sell their life insurance policy, while ten states have five-year waiting periods and one state (Minnesota) has a four-year waiting period. Most states provide exceptions to the five-year waiting period if the insured meets certain criteria, such as for the terminally ill and for other hardship situations.
Regarding licensing of life settlement professionals, most states require life settlement brokers and the buyers of policies to be licensed by the state in which the insured resides. Some states have specific rules that protect policy sellers by requiring life settlement brokers to act as fiduciaries. For example, Florida’s statute states that brokers “owe a fiduciary duty to the policy seller to act according to the seller’s instructions and in the best interests of the seller.”
Before pursuing a life settlement, we recommend that policy owners discuss with their life settlement broker or life settlement provider all the required disclosures applicable to their state law. Typical disclosures include, but are not limited to, the following:
- availability of options and alternatives to life settlements
- tax consequences of life settlements
- rescission rights
If you are considering a life settlement and have questions regarding regulatory oversight in your state, please contact us at 800-216-2513. We’ll be happy to provide you with as much information as we can to help you make an informed decision.