The life insurance and life settlement industries have been at odds with each other for quite some time now. This is understandable but unfortunate.
A better approach, for both industries, would be to find areas in which they can work together. As will be seen, underwriting reporting provides one such opportunity.
First, let’s review the current tension.
It is understandable that the life insurance industry would be concerned about abusive practices in which agents offer financial incentives to seniors to apply for life policies, with the premiums financed by non-recourse loans and the sale arranged to “stranger” investors. These deals undermine the principle of insurable interest and at the same time threaten the tax-privileged position of the life contract.
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But when the life industry solution is to put a 100% excise tax on the consideration for life policies sold within 5 years of issue, it is effectively using a cannon to kill a flea.
It is understandable that the life settlement industry would take issue with a proposal that would mortally wound the secondary market for life insurance and in the process deny consumers fundamental property rights by limiting their ability to sell their life contracts.
The truth of the matter is that the life and life settlement industries have far more to gain than to lose from each other.
A viable secondary market for life insurance makes the life insurance contract a more valuable product to sell by increasing the purchaser’s surrender options. At the same time, a vibrant secondary market for life insurance depends on a vibrant primary market.
If abusive insurance sale/resale practices result in an end to the tax-privileged position of life insurance, this will substantially reduce the amount of life insurance purchased, which will reduce the supply of policies available for resale, which would be devastating to the life settlement market.