Here is a great article from Investment News regarding Small Life Settlements, also known as “Small Face Policy”, “Low Face Policy”, or “Small Face Policy Program”.
Regulators and attorneys are worried that the expansion of the life settlement business into the world of small life insurance policies could harm some policyholders.
Life settlement customers could end up both cash-poor and coverage-poor if they sell their small-face-value life insurance, said Sandy Praeger, Kansas insurance commissioner and president of the Kansas City, Mo.-based National Association of Insurance Commissioners. The concept makes her feel “uncomfortable” — a sentiment many in the financial services industry share.
“These are folks who may be using up all their ability to buy $100,000 in insurance,” Ms. Praeger said. “They sell it for cash, go through the money and then later realize they may not be able to get insurance to function the way it should.”
In a life settlement transaction, insured individuals sell their policies to third parties for more than the surrender value. The third party pays the premiums and becomes the beneficiary. While life settlement providers have been buying larger policies for more than two decades — and packaging them for institutional investors who generally would not consider buying a policy under $500,000 — only recently have life settlement providers gone after smaller policies. Continue Reading »
