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Life Health > Life Insurance > Life Settlements

Seniors warned about life settlements

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NASD’s recent life settlement investor alert is both bad news and good news for advisors who do these transactions. The bad news: The alert may discourage seniors from considering the benefits of selling their life policy. The good: It may lead to more informed buyers, which may help discourage illegal or unethical settlement practices.

“Life settlements are not for everyone,” said NASD chairman and CEO Mary Schapiro in announcing the new senior alert. “While they can be a valuable source of liquidity for people who no longer want or need their current policies, life settlements can have high transaction costs and can have negative consequences for (a client’s) financial situation.”

Given NASD’s alert, it now makes sense for advisors and settlement brokers to make sure they’re in compliance with the appropriate regulator – NASD for variable life products and state insurance departments for non-variable products. The Life Settlement Association has compiled a list of states that require settlement and viatical licenses (

NASD’s investor alert urged consumers to consider five factors before proceeding with a settlement:

  1. The impact of the transaction on their ability to buy additional life insurance, should the need arise later.
  2. Whether or not the settlement provider is offering a fair price.
  3. Whether commissions paid to the life settlement broker and other financial professionals are reasonable.
  4. The transaction’s effect on other areas of the person’s finances (eg., taxes, Medicaid eligibility).
  5. Whether personal data will be kept confidential during the transaction.


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