Interest expressed by an unidentified company in initiating a policy loan program that it maintains could offer an alternative to life settlements is drawing curiosity and cautious reaction from life insurers and also questions about the uniformity of regulation.
Regulators weighed both the feasibility and public policy issues of developing a model for policy loan programs during a discussion at the National Association of Insurance Commissioners, Kansas City, Mo.
The proposed program would allow policyholders whose health has changed since the contract’s issue and who meet certain underwriting criteria to take a policy loan against the contract’s death benefit. However, because insurers cannot currently offer a loan that exceeds the policy’s cash surrender value, such a program would not now be permitted in some states. Regulators want to see if a model allowing such programs is feasible.
Indeed, one company representative wondered whether the tax issues alone could be an impediment to such programs, conjecturing about how such loans would be viewed in conjunction with a product that receives special tax treatment.
The American Council of Life Insurers, Washington, issued a statement expressing interest in learning more about the details of the proposal. ACLI continued, “But one thing is clear: 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 1980′s, 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,” ACLI said.
When contacted by National Underwriter, Mark Cybulski, a spokesman for Mass Mutual, said the company is aware of the discussion and intends to follow it closely. Mass Mutual did not initiate the discussion, Cybulski also noted.
Steve Washington, managing director of business development with Life Equity LLC, Hudson, Ohio, said it is premature to comment on the issue because not enough information is currently available. However, he added, “I am all for competition. If they think they have something that can compete [with life settlements], then by all means they should compete.”