Since the selling of life insurance policies became popular not more than 30 years ago, a number of new policies have been implemented that protect the buyer and seller of a life insurance policy. These regulations have been enacted at the state and federal level and they have added a level of security in an industry once plagued by cases of fraud. Therefore, it becomes important to know the laws when buying and selling life insurance policies. Knowing your rights as a broker, and knowing what to expect from your clients – as well as clients knowing what to expect from their brokers can help to make a more amicable and financially rewarding transaction.
The secondary market dealing in life settlements has become a lot more transparent and regulated. This is beneficial both for would-be buyers and sellers of these instruments. Unfortunately, many seniors (typically the sellers) and buyers (typically financial advisors, brokerages and hedge funds) still do not know some of the laws in place regarding this market.
Assets, just like a home, a NYSE stock, or a rare piece of art can be bought, sold, given, and exchanged. A life insurance policy works in much the same way. Life insurance policies are assets that essentially take in money during the present day, then give out money sometime in the future. Settlements reverse this process, giving consumers the option to stop paying monthly payments, while getting back a lump sum of money in a large-one-time-payment.
The ideal seller would be someone who is 70 years or older living with a chronic illness or other life threatening illness. For wealthier individuals who may be assured beyond their needs, this option gives them a chance to sell their settlement for a lump sum to be used for future endeavors and investments. Elder customers, largely due to ailing health and memory might allow their policy to lapse or even surrender the policy directly to the insurer for pennies on the dollar.
Some public and private organizations that have stepped up in defending seniors from predatory financial advisors are the Stanford Center on Longevity, the AARP, the Investor Protection Trust, and the Consumer Financial Protection Bureau. A recent report found that seniors over the age of 65 are “34 % more likely to lose money on a financial scam than people in their 40s” (Source). Accordingly, more laws and regulatory practices have been signed into effect in order to protect this population.
Some laws in place that defend sellers are listed below:
- Disclosure is necessary: Companies purchasing life settlements are required to disclose to their clients the information relating to other financial benefits including policy loans and accelerated death benefits.
- Buyers must provide sellers with a state-approved brochure that explains the risks and rewards in an unbiased way.
- Sellers Must Pass an Exam Determining Competence. In order to enter into a settlement contract, most states require that the seller’s personal physician provide a certificate of mental competence. This provides an added layer of safety to the consumer.
Through our 25+ years of industry related experience and professional staff on board, Life Insurance Settlements Inc. has developed a deep, thorough understanding of the life settlement industry. We work with clients to make them aware of their rights, and ensure both the buyers working on our behalf, and the seniors selling their life insurance policy to said buyers are staying honest with ethical business practices.
At Life Insurance Settlements Inc., we’d love to answer your questions about life settlements and selling your life insurance policies. There are many reasons why you should sell your life insurance and we can help you make that very important financial decision. Contact us directly at 866-326-5433 for more information on life settlements.