Trade groups say they want to hear more about a life insurer’s efforts to use a new policy loan program to create an option for customers who otherwise would sell their policies.
The unnamed life insurer has asked regulators about whether it could offer a loan program aimed at policyholders whose health has changed since their contracts were issued.
Eligible policyholders who met program underwriting criteria could borrow unusually high amounts against the contract’s death benefit, according to discussions under way at the National Association of Insurance Commissioners, Kansas City, Mo.
Today, insurers cannot offer a loan that exceeds a policy’s cash surrender value.
Because of that restriction, some states could ban the loan program that the unnamed life insurer is proposing, regulators say.
Regulators want to see whether creating a model allowing changed-health loan programs would be feasible.
One life insurance company representative who asked for anonymity asked whether tax issues could block implementation of a changed-health loan program.
The American Council of Life Insurers, Washington, says it wants to know more details.
“One thing is clear,” the ACLI says in a statement. “Consumers can only benefit from creative new ideas such as this one to address needs in the marketplace.
“Like the introduction of accelerated death benefits in the 1980s, this development seems to offer an important and attractive option to certain policyholders who would want or need to access part of their death benefit.”
Doug Head, executive director of the Life Insurance Settlement Association, Orlando, Fla., says he believes the proposed changed-health loan would come under the NAIC’s definition of “viatical settlement.”
If the changed-health loan proposal advances, the NAIC might have to take another look at the newly adopted viatical model, Head says.
“I am all for insurers entering the settlement business and making more capital available,” Head says. “It is a logical piece of their portfolio to hedge risk.”
But insurers should not be allowed to pick and choose the policies, “buy off risk on the cheap,” and have an “advantage in the market over anyone else” because of proprietary knowledge about those contracts, Head says.