Life Settlement Association Seeks To Step Up Accountability Standards
The nine-member board of the Viatical & Life Settlement Association of America, Orlando, Fla., agreed in a special meeting last month to pursue new levels of accountability for the industry. These include standardized good practices, increased self-monitoring and the possibility of future, impartial audit visits to members by teams of outside experts.
“Our members know that higher and higher standards of accountability are necessary if this industry is going to realize its full potential,” says Doug Head, executive director of the association.
The mainstream viatical and life settlement industry was created to meet the crisis of the AIDS pandemic, having existed previously in limited form, according to information from the association.
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Viatical settlements enable people who are seriously ill to sell their life insurance policies for an immediate cash settlement. That practice soon led to life settlements, which also enable people to sell their life insurance policies, the association says. Rather than being generated by serious illness, life settlements generally are transacted by seniors and other high-net-worth individuals for estate and financial planning purposes, the association says.
Bryan Freeman, president of the association board and the founder of two Atlanta-based settlement companies, says the board intends “to change the very nature of our organization to morph it into a best practices organization that will require members to meet the best practices standards that the board of the BPO implements.
“We are aware that audits from third-party auditors to assure compliance are at the very heart of a good BPO and intend to work toward finding independent auditors to assess each applicant for certification,” he says.
The board currently is studying other best practices organizations “in an attempt to do the best job possible and to put the implementation of the BPO on a fast track,” Freeman says.
The standards currently in place that members must meet include a requirement to make a number of disclosures to purchasers. Those disclosures include that the annual return on a viatical settlement transaction depends on the accurate estimate of the insureds life expectancy and the timing of his/her demise, and that an “annual return” can never be “guaranteed,” the association says.
Also to be disclosed is the identity of the party or parties who would be responsible for future premiums after the investor buys the policy and how these premium payments are guaranteed.
If premiums are prepaid in escrow for a certain period of time, the identity of the party who would pay premiums if the insured lives beyond his/her life expectancy must be disclosed. That the policy may lapse if premiums are not paid must also be disclosed.
If a policy is on waiver of premium and the insureds health improves to where he/she is no longer disabled, the member company must disclose who would be responsible for the payment of premiums.
Also to be disclosed is that there are certain risks peculiar to group policies, owned by employers or other organizations.