Demystifying the Secondary Marketplace for an Unneeded Life Insurance Policy

Three characteristics of the life settlement industry that may reassure advisors

Secondary Market for Life Insurance

Four out of 10 U.S. financial advisors have only a limited familiarity with life settlements or are entirely unfamiliar with these transactions, according to a 2015 survey published by WealthManagement.com. Although anecdotal evidence suggests this advisor awareness is increasing, there’s no question that many estate-planning attorneys and other advisors in a position to counsel clients on how to manage their assets are unfamiliar or misinformed about life settlement transactions.

In this column and more to follow, we’re trying to shatter some of the common myths in the financial planning profession that lead to these false perceptions. Here’s the one we’d like to tackle today: “The life settlement industry is an unregulated marketplace for selling life insurance on the secondary market.”

It’s fair to say that the early days of the life settlement industry were a bit like the Wild Wild West, but that’s typically the case with any industry in its infancy that’s growing rapidly. Those days are over. This is now a mature industry with three major characteristics that any attorney or financial advisor wants to see in place for the protection of their clients’ assets.

Safe

The place to start is with empirical results. The Deal recently investigated consumer complaints filed in the past four years with state regulators regarding life settlement transactions by conducting their own independent review of The National Association of Insurance Commissioners’ database and speaking to individual state regulators. Their conclusion was that “there are only three consumer complaints” nationwide regarding life settlement transactions and “at least two of them don't involve life settlement market players.” In fact, the one consumer complaint on record regarding life settlement transactions was the result of a sales agent who failed to follow the proper licensing requirements, paid a fine and was reinstated.

Contrast this extraordinary record of serving consumers with the data regarding the life insurance industry, for example. According to the National Association of Insurance Commissioner’s Consumer Information Resource, there are tens of thousands of consumer complaints on file, for reasons ranging from delays in claim handling to unsatisfactory policyholder service. The ethical and regulatory safeguards in place have served to protect the integrity of the U.S. life settlements marketplace.

This blog was originally published on WealthManagement.com.
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