New York – New NY Law To Regulate ‘life settlement’ Industry

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    New York – A new law seeks to protect consumers by regulating “life settlements,” in which the elderly sell their life insurance for far more than the value upon cancellation to get cash, often to stave off hard times.

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    “It’s a billion dollar unregulated market,” said Sen. Neil Breslin, an Albany County Democrat who sponsored the bill. “This legislation contains numerous disclosure and consumer protection provisions which will help to ensure that an owner considering selling his or her policy makes an informed decision.”

    Sen. Eric Schneiderman, a Manhattan Democrat, said fraud and abuse are rampant in the system, a view disputed by the industry.

    “We think we offer a tremendous option to consumers,” said Doug Head, executive director of the Life Insurance Settlement Association based in Florida, which supports regulation. He said a policy holder, usually in their 70s or older, can get 15 percent to 20 percent of the final death penalty of their policy. That’s three to four times more than the insurance company would pay, any many consumers simply let their policies expire to avoid paying more premiums, he said.

    Head said 39 states now regulate the industry and, with the addition of New York, 80 percent of the U.S. population is protected by state laws.

    The law will force health records associated with policies to remain confidential and will license operators, similar to what the state already does for other insurance-related companies. The new law also prohibits an offshoot from the life settlement industry in recent years, called stranger-originated life insurance. Under a so-called STOLI, life settlement companies and investors target individuals, often senior citizens, and get them to buy life insurance policies with large payoffs upon death for the sole purpose of selling the policies to a company.

    Head noted STOLI sales are done by life insurance companies because they are the only agents licensed to originate an insurance policy. Life settlement companies are the secondary market, selling and reselling policies written by insurance companies.

    The life settlement industry began in the late 1970s, when AIDS patients sought to sell their life insurance policies for cash to pay for treatment, experimental drugs, and for routine bills when they lost their jobs. In recent years, the industry has focused on older people without life-threatening diseases, but who no longer need or want life insurance or who need to cash in the policies for a fraction of the death benefit.

    The policies are then resold, with the ultimate holder of the policy receiving the death benefit when the original policy holder dies.

    Head said he has a concern over some issues in the law, strongly supported by insurance companies. For example, the measure creates a misdemeanor of life settlement fraud punishable by up to a year in jail, when Head believes some of the same acts committed by licensed life insurance agents don’t carry a criminal charge.

    “The imbalance is extreme,” he said.


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    10 Comments
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    Eli
    Eli
    14 years ago

    Another blow to the AK brokers…..

    Anonymous
    Anonymous
    14 years ago

    Another “Yoli” business going down the tubes….

    Anonymous
    Anonymous
    14 years ago

    To # 1 and # 2
    If you don’t know the Business and you don’t understand the article don’t comment like a child

    Yossi
    Yossi
    14 years ago

    Can someone please explain whom exactly this regulation protects?
    The old man rather wants the money now, the insurance underwriter knows exactly the risk involved.
    who is being cheated?

    Me
    Me
    14 years ago

    U oh, “AK” Brokers gotta get real job……..

    Anonymous
    Anonymous
    14 years ago

    Well I saw MAXLIFE today by the aguda convention it seems to me like its still a buissness

    Anonymous
    Anonymous
    14 years ago

    Aguda still has conventions? Where is it?

    Anonymous
    Anonymous
    14 years ago

    AK means Alte Koka. And although there are many “unzere” in the business, they are a mere drop in the bucket. For those people unfamiliar with the business, there are major national and international banks and hedge funds with billions of dollars invested in the life settlement market and these policies are being packaged and securitized by financial companies no differently than mortgages. I believe Cantor Fiztgerald even has a life settlements exchange set up and running. It is by far NOT a “Yoeli” business and there is nothing inherently illegal about it. If done properly it is 100% legal. However, like any other industry there is the possibility of fraud and all this proposed law (it is far from being enacted) does is insist that the industry be regulated like any other consumer related industry (such as mortgages) to protect the consumer from fraudulent operators. There is plenty of fraud in the mortgage business too. Is that a reason to outlaw mortgages or speak disparagingly about the mortgage industry and mortgage brokers?

    anonymous
    anonymous
    14 years ago

    I agree that this area needs to be regulated. My father was taken for a ride by these brokers.