Welcome, to Genesis’s Asset Advisors life settlement blog. Blogging is all about sharing your ideas, knowledge and opinions, and that’s what this blog will be all about. The emerging secondary market for life insurance, otherwise known as a life settlement is quite simply the sale of a life insurance policy insuring an individual over the age of 65 to a licensed provider or fund for a settlement amount greater than the current cash surrender value and less then the policy’s death benefit.
A life settlement transaction may be completed on whole life, universal life and survivorship policies, as well as term policies that still have a conversion option available. Policies generally must be past the contestability period which is usually two years.
I wanted to touch base today on a topic that we have briefly discussed in one of our previous newsletters, and for those of you who don’t get our newsletters; you can sign up through our website or by emailing firstname.lastname@example.org. Our newsletters are just another informative outlet we use to keep our sourcing partners and anyone who is interested in a good read, in the know regarding the life settlement industry.
Back in November of 2012, at the NCOIL conference in Austin Texas a model act was proposed which could be adopted on a state by state basis, mandating life insurance carriers to disclose to policy owners insuring an individual over the age of 60, of 8 alternatives to lapsing or surrendering a policy. These alternatives included converting the policy to long term care insurance, accelerated death benefits and the benefits of a life settlement transaction. This act is known as the Consumer Disclosure Act.
So far 5 states including: Kentucky, Maine, New Hampshire, Washington and Wisconsin have adopted the Act, and hopefully many more states will follow.
The overall objective of the act is to increase consumer awareness as well as the awareness of advisors about the options available to them and their clients. Each state that has adapted the act has gone this route with only minute changes in their respective state. For example, in the state of Wisconsin, the life insurance company is mandated to send out the disclosure upon delivery of the policy and an additional letter on an annual basis reminding the policy owner that they have options and if considering a change in their policy should consult an advisor. In the other states, the disclosure is sent out to individuals who own a policy insuring an individual over the age of 60 or when the insured is known to be chronically or terminally ill, when the carrier sends out a grace notice or if the owner made a request such as an accelerated death benefit.
The Act is a real breakthrough for the life settlements industry and a wonderful opportunity for policy owners. Until the disclosure was passed, many owners lapsed or surrendered their policies simply because it was no longer affordable or needed. In fact, back in 2010, approximately $972 billion dollars worth of life insurance death benefit lapsed in the US, and of that number a significant amount belonging to seniors – that is an extraordinary amount of missed opportunities.
The Consumer Disclosure Act also mandated that it be made clear by the state, that not every policy owner will have all possible alternatives available and should consult a financial advisor or insurance professional to see what their options are. A life settlement is not for everyone but for those policy owners which may find it applicable, it is an unparalleled opportunity.
The bottom line is whether you are an advisor or a policy owner, you have the right to know all the available options when considering a change in your life insurance policy or your client’s life insurance policy and absolutely no opportunity should be potentially left on the table, especially something as significant as a life settlement.