A founding member of the life insurance settlement business criticized a recent study finding life insurance settlements are costly for policyholders.[@@]

William Scott Page, head of Wm. Page & Associates Inc., Atlanta, one of the founders of the life insurance settlement industry, says the study, underwritten by Massachusetts Mutual Life Insurance Company, Springfield, Mass., was biased and exaggerated.

Life insurance settlements enable individuals, typically seniors who have become disabled or seriously ill, to sell existing life insurance policies for sums that exceed their cash surrender values.

MassMutual and other insurers commissioned Deloitte Consulting and the University of Connecticut to analyze life insurance settlements.

Their analysis concluded life settlement transaction costs such as commissions, marketing, overhead and profit typically amount to 50% to 67% of the policies’ intrinsic economic value. The study also concluded “the policyholder with impaired health could maximize her estate value if other assets are liquidated and the life insurance policy is maintained until death.”

Page says he suspects the study was based on unrepresentative samples in that it attempted to apply findings from New York to the rest of the market.

New York, unlike other states, does not require settlement companies to report the transaction data that the study claims to have analyzed, Page says.

Page says individuals who sell policies are not well served by the insurance industry because their coverage is either too expensive or obsolete.

“Sometimes policyholders don’t need their coverage anymore,” Page says. “The insurance industry wants policyholders to keep paying premiums even if they go broke in the process. Our industry can’t advocate that.”