As recently reported by LifeHealthPro.com, a California couple who dropped the face amount of their survivorship insurance policy from $7.2 million to $2 million have brought suit against the issuing insurance company for failing to inform them of the option of a life settlement. Although this action was brought against an insurer, the law suit could also have significant implications for producers.
Sadly, California has not enacted the NCOIL Model Disclosure Act that requires insurers to inform senior clients, that are about to surrender a policy, that the option of a life settlement exists. That being the case, it may be a stretch to hold an insurer responsible for advising policyholders about life settlements in California.
However, carriers that forbid their producers from participating in life settlement transactions for their clients are taking the problem a major step further. They are engaging in conduct that goes beyond merely failing to inform. That is, they are actively preventing consumers from getting the information and counsel they need.
While insurers’ exposure to liability might be somewhat tangential, producers have a much more direct relationship with their clients. When producers are essentially being gagged by their companies from discussing life settlements with their clients, they are being placed in a perilous position of having to choose between following their company’s rulesand giving proper advice.