Many of us love a good book on a crisp autumn day — maybe the latest autobiography, a feel-good novel or a best-selling legal thriller. Of course, for anyone who enjoys books, we know the difference between fiction and non-fiction.
You may have heard about a new novel released this fall (The Carnage Account by Ben Lieberman) that revolves around a Wall Street financier who purchases life settlements that are based on multimillion-dollar life insurance policies. In the fictional world dreamed up by the author, the villainous lead character in the story covertly buys life insurance policies from people who are in need of funds and then dispatches them with his own bare hands in order to collect the death benefit for his “Carnage Account” fund.
The plot is intriguing and has attracted the interest of some readers, including a reporter for Time who recently wrote an article about life settlements that was based largely on the sensationalist drama portrayed by Lieberman’s novel.
But while novels can be fun to read, it’s important to separate fiction from non-fiction when it comes to the real-world life settlements marketplace. Here are just a few of the stark contrasts between the fiction portrayed in these recent stories and the reality of life settlements:
FICTION: Life settlements are common for people of all ages.
REALITY: Candidates for life settlements are typically age 70 or older, unless they have some specific health impairments. Professionals in the life insurance settlement industry are focused on informing and educating seniors about the life settlement option.
FICTION: Consumers pursue life settlements in order to get out of debt quickly.
REALITY: There are a variety of life circumstances that may lead someone to be interested in exploring the life settlement option, including: the life insurance policy is no longer needed or wanted; premium payments have become unaffordable; the senior is considering surrender or lapse of the policy; a change in estate planning needs; a change in the family’s financial circumstances; or changes in life circumstances, such as divorce or the sale of a business.
FICTION: Life settlements are based on insurance policies with a minimum of $5 million in death benefits.
REALITY: Life settlements are typically an option for seniors with a life insurance policy that has a death benefit (“face value”) of more than $100,000, but may be as low as $50,000. A settlement is possible any time the policy’s face value exceeds the cash surrender value, based on a simple analysis of the death benefit, the annual premium and the life expectancy of the policyholder.
FICTION: Individual investors purchase life settlements.
REALITY: As the voice of the life settlements industry, the Life Insurance Settlement Association (LISA) has adopted a position and stated publicly that this marketplace is not appropriate for individual investors acting on their own. The primary buyers of life settlements are institutional investors, such as pension funds, endowments, foundations and private equity funds.
FICTION: The life settlements marketplace is the Wild West of high finance.
REALITY: As of 2014, 42 states regulate life settlements, affording approximately 90 percent of the U.S. population protection under comprehensive life settlement laws and regulations. Of this group, 31 states have a statutorily mandated two-year waiting period before one can sell their life insurance policy, while 10 states have five-year waiting periods and one state has a four-year waiting period.
FICTION: Life settlements are open transactions where personal information attached to the life insurance policyholder is made public.
REALITY: Privacy of personal information in a life settlement transaction is protected carefully in accordance with federal and state privacy laws. In addition, LISA’s Code of Ethics and Standards of Professional Conduct requires all members to abide by all applicable laws and regulations regarding privacy of information. Seniors who wish to pursue a life settlement should work with life settlement intermediaries who are licensed and required to operate within the strict laws pertaining to procedure, privacy, licensing, disclosure and reporting.
So now if you happen to read The Carnage Account — or chat with someone who has — you may be struck by the far-fetched plot envisioned by the imagination of an author who writes fiction and the reality of a highly regulated marketplace that exists to provide seniors with an important financial planning option to consider in the golden years of their lives.