Washington, Oregon and Maine now have laws that a require life insurers to notify policy owners that the owners have alternatives to cashing out, accelerating or lapsing their life policies.
That development is being welcomed by settlement industry professionals, because one of the available options is life settlements.
But how might those new laws impact advisors who work on settlement cases?
The question is getting legs because some industry experts are predicting other states will enact similar laws. For instance, Timothy Pfeifer, president of Pfeifer Advisory, LLC, Libertyville, Ill., says that “disclosure of settlement options to policyholders will be broadly required” in the coming years.
The insurance industry is recognizing that settlements are here to stay and that the overall movement is towards more disclosure, he explains.
He notes that 3 or 4 insurers are doing their own settlement services on a per-case basis. “The companies have sent their agents directives that say something like this: ‘If your customer is considering a life settlement, let us know. We have internal operations for doing this.’”
All of this will fuel the expansion of state laws requiring disclosure of settlement options, Pfeifer concludes.
If that happens, it will be increasingly important for agents to become familiar with all settlement options and be ready to discuss them with clients, say experts.
Those options should include life settlements, say settlement experts.
James W. Maxson, an attorney with experience in settlements, is quick to point out that the new disclosure laws are specifically directed to life insurers. “There is no legal risk to the advisor under the disclosure sections of the laws.”
But when policyholders receive the disclosure notices from their insurers, some policyholders will likely contact their advisors to learn what their alternatives are, says Maxson, who is of counsel with Morris, Manning & Martin, LLP in Atlanta.
The advisor has the responsibility to discuss all available options, he says. And “under common law, they have the obligation to discuss the best possible option,” he adds.
In fact, says Maxson, “advisors always have the responsibility to provide all available options, and to recommend the best option.”
Richard L. Akins, a financial planner and investment advisor with LPL financial Services in Portland, Ore., adds, “We (advisors) are required ethically to give all information to the client and guidance based on our experience to help solve the client’s problem.”
In his own practice, when he encounters a client for whom a life settlement would be the best available option, he says he sends the client to an expert in the settlement business. “I don’t handle the transactions myself, but I do know about them and discuss them,” he explains.
Akins recalls one man in his 70s who had no dependents and no longer needed his life policy. “We discussed the advantages and disadvantages of all the options, including life settlements and reverse mortgages (which Akins also rarely handles), and then the client made the decision based on what he wanted to do.”
Akins predicts that similar scenarios will play out under the new Oregon law.