The Life Settlement Institute Responds to Bloomberg Article
April 6, 2009
PR Newswire, 02 April 2009
Washington
The Life Settlement Institute (LSI), the leading organization representing secondary market providers for life insurance, responded today to a statement made by Mr. J. Bruce Ferguson, senior vice president for state relations at the American Council of Life Insurers in Washington, in an article published by Bloomberg on March 26, 2009.
In the article, Mr. Ferguson asserted that there was “probably not a whole lot of difference” between the value that a life insurance policy owner can receive for his or her life insurance policy in a life settlement compared with the cash surrender value (CSV) that he or she would be entitled to receive upon surrender of the policy to the issuing life insurance carrier. This is simply not true. CSV is an amount specified by formulas in the life insurance contract, which amount is affected by the insurance carrier charges for cost of insurance, interest credit rates, the policy owner premiums paid, outstanding loans and riders such as wavier of premiums for disability, death benefit maturity extension, accelerate death benefits and others. The CSV typically ranges from $0 to several hundred thousand dollars per policy, depending on the size and age of the policy. Prior to evolution of the life insurance secondary market, policy owners had only one option when they wanted to terminate a life insurance policy - either surrender the policy to the life insurance carrier in exchange for the CSV - or let it lapse - that is, discontinue paying premiums on the policy and receive no value for it from the insurance carrier. Today, seniors can enjoy a highly valuable second option-a life settlement. A life settlement is the sale of a life insurance policy to a third party for MORE than its cash surrender value, but less than its net death benefit … by most state laws it has to be more. The buyer (investor) assumes responsibility for continuing premium payments to maintain the policy and receives the policy’s net death benefit when the named insured ultimately passes away.
Contrary to Mr. Ferguson’s assertion, Life settlement providers typically pay a significant multiple of the CSV for policies. In a recent survey of life insurance policies purchased by LSI members found that, in 2008, the average net amounts (after all commissions, fees and expenses) paid to policy owners for policies purchased ranged from 7 to 12 times the CSV. In many cases the CSV payable by the insurance carrier is $0 so seniors do infinitely better in a life settlement. Stated differently, the amount paid in life settlements represents real and meaningful value to America’s seniors that would have otherwise been lost. Seniors and their advisors need to be advised of this valuable life settlement option, particularly in today’s financial environment.
ABOUT LSI
The Life Settlement Institute is a trade association dedicated to: increasing the knowledge and awareness on the part of financial planning professionals and advisors of the life settlement industry, increasing the awareness of life insurance policyholders of the option of obtaining more value (where appropriate) for their policy than otherwise would be available from the issuing life insurance carrier, promoting the use of institutional financing in the life settlement industry, supporting laws and regulations that foster the use of such institutional financing and preventing fraudulent or dishonest life settlement transactions. LSI has been the leading organization in promoting and supporting strong regulation of the life settlement market and in promoting best practices within the industry. LSI and its members have successfully advocated for the passage of every state settlement law adopted since 2001, all of which are based on the model laws of the National Conference of Insurance Legislators (NCOIL) and the National Association of Insurance Commissioners (NAIC). Today, 29 states regulate life settlements to protect life insurance policy owners who are considering a life settlement, and more states are currently considering and adopting legislation. Each state life settlement law contains strong consumer protections and anti-fraud measures, including required consumer disclosures, privacy protection, and the requirement that life settlement providers and others report suspected fraud to insurance regulators.
For additional information, please visit http://www.lifesettlementinstitute.org
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Source: Life Insurance Settlement Association (”LISA”). www.thevoiceoftheindustry.com
