New York insurance regulators have issued a ruling that could affect life settlements involving conversions of term life insurance policies.
In the ruling, officials at the New York State Insurance Department Office of General Counsel look at a case involving a term life insurance policy that gave the insured the right to convert to a permanent life insurance policy.
New York state has a law that discourages consumers from buying life insurance policies solely to sell them through the life settlement market by restricting life settlement transactions during the first 2 years that a policy is in effect.
The woman who owned the policy converted it, then set about selling the permanent life policy to a life settlement provider.
The life insurer that issued the policy, John Hancock Life Insurance Company, Boston, tried to block the transaction. The insurer said that the converted policy would be a “new policy” for life settlement purposes and that insurable interest requirements would apply, officials say in the New York department opinion.
An insurer “may not deny [the consumer's] request to convert her convertible term policy on the basis that she intends to settle the converted policy,” officials say in the opinion.
An insurer may not deny a conversion request to block a life settlement transaction
“because: 1) a conversion, to the extent that there is no increase in the death benefit, is a continuation of the policy being converted; 2) is not prohibited by [law] from converting the policy; and 3) the Legislature did not intend [the life settlement law] to limit otherwise legal conversions,” officials say.
John Hancock says in a statement that it is company policy not to comment on specific policyholder matters or matters in litigation.
“However, our actions are guided by our obligations to comply with the law and the terms of our contracts,” the company says. “This serves the best interests of consumers.”
Darwin Bayston, executive director of the Life Insurance Settlement Association, Orlando, Fla., says denying policy owners a chance to maximize the value of unwanted or unneeded life policies is “anti-consumer.”
“The significance of this ruling for consumers and the secondary market for life insurance is vital to the fundamental property and contract rights of all policy owners,” Bayston says.