For years, life settlements have been regulated by nearly all the states. Life settlement laws are current in 42 states, covering more than 90 percent of the American population.
Despite now having an orderly and comprehensively regulated market, there are still life insurance companies — not to mention broker-dealers and independent marketing organizations — that prohibit their producers from being part of a life settlement transaction. Why shouldn’t producers be permitted to bring the benefits of a life settlement to their clients?
Consider this case we handled for a 73-year-old woman who contacted her insurance agent for information about a $1,000,000 universal life policy on her life purchased 18 years ago, when her husband had a stroke. At the time, she was a school teacher but was able to take on the additional responsibility of caring for her husband, who could no longer work.
The policy was bought so that if she predeceased him, money would be available to hire a caretaker for him. And if she outlived him, there would be significant cash value to supplement her retirement income.
After her husband died, she expected to cash in her policy for $212,000, as shown on the original illustration. But her agent had to uncomfortably explain that, due to significantly lower interest rates than had been projected, her policy was only worth $52,000.
The woman was, of course, extremely upset because she was counting on this money. Her health had deteriorated, and she needed additional funds for medical care, housekeeping services and general living expenses for herself.