The Insurance Studies Institute recently released a new Consumers’ Guide titled Should I Sell My Life Insurance Policy?  I have read through the guide and found it to contain very useful information for potential policy sellers.  I think that brokers can use the guide as a tool for educating clients who may be considering a life settlement.  Also, for seniors looking for information who may be studying the life settlement industry, the guide provides valuable information for understanding the process and answering the most frequent questions raised when considering a life settlement or going through a life settlement transaction.   In addition, the guide provides useful links to find further information so that seniors can make an informed decision about whether or not to sell a life insurance policy, and, if so, what to expect in the process.  Furthermore, through the guide and supplied links, seniors can learn about what their rights are and who are the companies licensed to enter into life settlement transactions. 

I continue to believe that one of the challenges that exists in the life settlement industry is that seniors and the people who work hard to represent seniors’ financial interests do not know enough about the life settlement industry.  ISI’s new consumer guide is a good tool that can be used to help educate seniors and their advisors about life settlements and how to best approach the process. 

 You can find the Consumers’ Guide by clicking here.

Life settlements are a newly emerging and quickly growing marketplace within the life insurance industry. Over the past few years, life settlement companies have begun to see an enormous opportunity in providing a viable financial alternative to life insurance policy owners looking to sell their life insurance policies for cash. The opportunity exists for policy owners – individuals, companies, trusts, partnerships, and others – whose policies insure people over the age of 60. Previously, the only alternatives available to life insurance policy owners were to let a policy lapse or, if possible, surrender a policy to the life insurance company for the policy’s cash value. What has emerged through the life settlement process is, in many cases, a more lucrative offer to settle the policy with a third-party for an amount in excess of all other alternatives.

Q Capital purchases life insurance policies with a face value in the range of $100,000 to $10,000,000 that insure the lives of U.S. residents over the age of 60. We purchase various types of life insurance products, including universal life, variable life, whole life, convertible term, and survivorship policies. Currently, our distribution channels are qualifying approximately $2.5 billion face value of life insurance policies eligible for settlement on a monthly basis. For more about our policy origination capabilities and product offerings, please click here.

Q Capital also offers a full range of servicing and asset management activities for life insurance policy owners, whether such policies were acquired via a life settlement or otherwise. These services include policy maintenance and premium payment, life tracking, updating medical information, and policy collections. For more about our servicing and asset management capabilities and product offerings, please click here.

(For the Glossary, Part 1 – http://www.thelifesettlementsource.com/index.php/2010/01/05/a-glossary-for-life-settlement-terms/  )

LE: Life expectancy, an estimate of the period of time a person has left to live

Legal Competency: An opinion provided by an insured’s and/or policy owner’s doctor providing medical assurance that the insured and/or policy owner is of sound mind.

License (Provider): A state-issued designation that provides a company the legal right to purchase life and/or viatical settlements in that state – only certain states require Provider licensing (check with the Legal Department if questions arise)

Life Insurance: An asset purchased to provide financial protection should an individual (the insured) die whereby the named beneficiary will be paid a death benefit by the insurance company

LISA or Life Insurance Settlemnet Association: The most recognized trade association in the life settlement industry.  LISA participates in regulatory and legislative matters in all 50 states, the District of Columbia, Puerto Rico, and Canada.

Life Settlement: A transaction where a lump sum cash payment is made to the owner of a life insurance policy to purchase both the rights of ownership and beneficiary designation

Life Settlement Provider (or Viatical Settlement Provider): Company or individual that purchases or facilitates the purchase of the rights of ownership and beneficiary designation of an insurance policy.  In 29 states and Puerto Rico, a company must be licesed by the state insurance department to be a Life/Viatical Settlement Provider.

Life Threatening Illness: An illness that will cause premature death, e.g. HIV/AIDS, Cancer, Lou Gehrig’s Disease, Advanced Heart Disease, Liver Disease, etc.

Living Benefit (Accelerated Benefit): Death benefits paid to a policy owner while the insured is still alive using strict guidelines dictated by insurance carrier.

Medical Records: Records provided by an insured’s doctor(s) and other medical care providers or facilities (hospitals, etc.) reflecting the insured’s medical history

MIB (Medical Information Bureau): An agency established in 1902 by physicians who were medical directors for 15 life insurance companies in an effort to reduce insurance fraud in the underwriting of individual life/health/disability insurance applications. The MIB functions like a credit bureau for the insurance industry. Today less than 20% of applicants are screened by the MIB and all records are destroyed after 7 years. No information for life settlements is shared with the MIB.

NAIC or National Association of Insurance Commissioner: The organization of insurance regulators from the 50 states, the District of Columbia and the five U.S. territories. The NAIC provides a forum for the development of uniform policy when uniformity is appropriate.

NCOIL or National Conference of Insurance Legislators: The organization of state legislators whose main area of public policy concern is insurance legislation and regulation. Many legislators active in NCOIL either chair or are members of the committees responsible for insurance legislation in their respective state houses across the country.

Non-Contestable Policy: A life insurance policy that is beyond the contestability period

Notary Seal: A legally recognized authority witness to legal written signatures and dates

Owner or Policy Owner: The company or individual that pays premiums and has rights to change beneficiary status and/ or reassign ownership. The Owner is not always the Insured.

Premium Mode: The frequency of premium payments, i.e., monthly, quarterly, or annually.

Premiums: The periodic payment required to keep a life insurance policy funded and in-force

Ratings: Insurance company ratings as published by Standard & Poors, Moody’s, Fitch, or A.M. Best. Ratings are comprised of alphabetic or alphabetic and numeric levels that designate the insurance company’s ability to meet its financial obligations. The ratings are from A to D with the A level being the lowest risk. Most Investors seek an insurance company credit rating of “A-” or better.

Rescission Period: A period of time, dictated, where applicable, by state law, that the seller of a life insurance policy can reverse a life settlement transaction. In most regulated states, the rescission period is 15 days. The rescission period does not start until the seller has received the funds from the escrow agent. For a rescission to be effective, the money must be returned to the Life Settlement Provider within the rescission period.

SGLI: Serviceman’s / Servicewoman’s Group Life Insurance Policy

Split-Dollar Policy: A life insurance policy that includes an arrangement between two parties where life insurance is written on the life of one party who also names the beneficiary of the net death benefits (death benefits less cash value) and the other party is assigned the cash value of the policy. The two parties share the responsibility for making premium payments.

State Regulations: State Government Rulings

STOLI or Stranger Owned Life Insurance: STOLI is the issuance of life insurance for the benefit of an individual who has no insurable interest to the insured.

Suicide Period: The period of time that a life insurance policy does not pay a death benefit is death is by suicide. If an Insured commits suicide during the suicide period, the insurance company must return the premiums paid on the policy to that date. The suicide period usually coincides with the Contestability Period.

Term Policy: A life insurance policy that provides coverage for a limited number of years and expiring without value if the Insured survives the stated period, which may be one or more years, but usually is 5 to 30 years

Tracking: A process of maintaining contact with the life status of the Insured of a life insurance policy after the policy has been sold in a life or viatical settlement

Underwriting: Information gathering and verifying process whereby the company assures that all relevant policy and medical information is available for review to analyze a life insurance policy, determine a life expectancy, and value a policy

VGLI: Veteran’s Group Life Insurance

Verification of Coverage (or VOC): A statement provided by an insurance company defining the current status of a life insurance policy, including relevant policy values, premium payments, and ownership status

Viatical Settlement: A transaction where a lump sum cash payment is made to the owner of a life insurance policy to purchase both the rights of ownership and beneficiary designation where the Insured has 24 months or less life expectancy and/or has a terminal illness (exact definition depends on specific state law)

Viatical: A word derived from the Latin word VIATICUM which, loosely translated, means provisions for a long journey (viaticum referred to the provisions supplied to the Roman soldiers preparing to do battle). The term has been adopted to mean the sale of a life insurance policy in the secondary market, usually referring to a situation where the Insured is terminally ill and/or has less than 24 months to live.

Viator: Seller of a life insurance policy, sometimes used to refer to a policy where the insured has a 24 months or less life expectancy,