Kohl Wants Settlement Changes

WASHINGTON — A lawmaker is calling for federal oversight over the life settlement industry, and for a look at life settlement taxation rules.

Sen. Herbert Kohl, D-Wis., chairman of the Senate Special Committee on Aging, said at a hearing on the life settlement market that the market can be helpful to older Americans.

“Life settlements can be a worthy alternative for seniors who are considering the sale of their life insurance policies,” Kohl said today at the hearing, which had the title, “Betting on Death in the Life Settlement Market: What’s at Stake for Seniors?”

Life settlement payments often are higher than policy cash surrender values, and members of the committee staff have interviewed many honest, competent players in the industry, Kohl said.

“But selling one’s life insurance policy is a complex transaction, fraught with possible hidden pitfalls,” Kohl said.

Concerns include the state of consumer disclosures and the rise of stranger-originated life insurance, Kohl said.

“It is crucial that the federal role be made clear,” Kohl said. “We may be introducing legislation to address this issue.”

The Aging Committee has asked the U.S. Government Accountability Office to review the life settlement market, and it has asked the Internal Revenue Service and the U.S. Securities and Exchange Commission to clarify their positions on life settlements, Kohl said.

In the area of taxation, “the current lack of guidance may be creating loopholes,” Kohl said.

Kohl reported that Treasury Secretary Timothy Geithner, who is head of the agency that overses the IRS, has written to say that the IRS soon will address the life settlement issue.

SEC Chairman Mary Schapiro said the SEC will be taking a look at life settlement brokers, and she clarified the SEC’s views on SEC jurisdiction over many aspects of the life settlement market, Kohl said.

Schapiro said the SEC believes that a life settlement comes under its authority if the policy innvolved is a variable life insurance policy or some other product that is treated as a security. A life settlement transaction also would come under SEC authority, “regardless of whether the policy is a security (and many life insurance policies are not) if the owner sold the policy in order to purchase securities with the proceeds,” Schapiro told the Aging Committee.

During testimony at the hearing, Kohl and Sen. Melqu?ades Martinez, R-Fla., the highest-ranking Republican on the Committee on Aging, grilled a panel of witnesses that included two representatives from the life settlement industry; a life insurance executive who appeared on behalf of the American Council of Life Insurers, Washington; two insurance regulators; a state securities regulator; and Stephan Leimberg, a Havertown, Pa., financial services expert who has written Tools and Techniques of Life Settlement Planning,
a book published by The National Underwriter Company.

Michael Freedman, a senior vice president at Coventry First L.L.C., Fort Washington, Pa., talked about the value that life settlement companies offer consumers.

“Life settlements provide a valuable alternative to the lapse or surrender of a policy,” Freedman said. “Life settlements pay policy owners fair market value for their policies.”