Life settlements is a multibillion dollar industry. A recent research report estimated that in 2008, the life settlement industry transacted business involving $12 billion worth of US life insurance policies’ face values.
However, some academics and practitioners have questioned the validity of these figures given that life settlement providers are not required to report the volume of policies purchased to a central depository, and estimate that the potential life settlement market could exceed $160 billion.
While life settlements may be a valuable way for seniors to derive previously inaccessible economic value from their life insurance policies, recent news reports, complaints by state law enforcement, and notices from the Financial Industry Regulatory Authority (FINRA) have highlighted the dangers that life settlements may pose to the elderly.
Given these potential dangers and in response to numerous reports of industry misconduct and improper marketing, the US Senate Special Committee on Aging recently initiated an investigation into the composition and business practices of life settlement providers.
The committee’s preliminary findings indicate:
(1) life settlements may create unintended consequences for seniors;
(2) the Internal Revenue Service has not clarified life settlements’ tax liabilities;
(3) most state securities regulators consider life settlement investments to be securities while the Securities and Exchange Commission has yet to clarify its position; and
(4) states are taking action to increase transparency in the life settlements market, but lack consistency.
The study can be found on http://www.aging.senate.gov/letters/lifesettlementfindings.pdf
Life Settlements: Risks to the Elderly