Interesting Life Settlement article I found discussing the back end of Life Settlement transactions. This article does not necessarily effect individual policy owners that are selling their policies. If you are interested in sell you life insurance policy, call 1-888-973-8377

Death Trap Ahead
Death bonds may sound like a good investment–but are they?

When I started seeing articles last summer about something called death bonds, it took me back to the ’90s when I was a personal finance columnist in Tampa, Florida, witnessing the tail end of the viatical settlement movement. Viaticals were contracts calling for an investor to pay part of a seller’s life insurance policy upfront and wait to collect the full amount when that person died. Viaticals originally catered to AIDS patients but were later marketed to all sorts of terminally ill folks. The viatical business worked in theory, but in practice, it attracted shady characters and enough fraudulent behavior to keep a personal finance columnist busy for years.

With death bonds, it seems the viatical settlement industry has matured and drunk the Wall Street Kool-Aid. Life settlement-backed securities are essentially spiffed-up viaticals. But this time, companies are bundling them up, dividing them into bonds and selling them mostly to institutional investors. Providers market them as good investments because they’re not correlated with traditional investments–undoubtedly true–and because they can generate returns of 8 percent a year or better. The return figures might not be exaggerated, though history tells me to keep a hand on my wallet when listening to claims made by the people who dream these things up. As long as Wall Streeters are bundling the bonds for sale to hedge, pension and mutual funds, I’ve got no complaints. But don’t be surprised to hear a sales pitch arguing that sophisticated individual investors could use some death bond diversification, too.

A couple of simple online searches tell me what I need to know for now: Many of the same characters from the old viatical business are now working the life settlement trade, which is to say that securities regulators are beginning to unearth scams. In some cases, promoters have attempted to persuade people (who aren’t terminally ill) to take out life insurance strictly for the purpose of selling it. In others, they’ve inflated the expected returns based on the life expectancies of insurance holders. It’s no wonder the National Association of Securities Dealers recently issued a warning about abusive practices in the industry.

So unless or until the industry gets absorbed by the mainstream investment community and sheds its sketchy past, steer clear.

Source: Scott Bernard Nelson is a newspaper editor and freelance writer in Portland, Oregon.

The U.S. Supreme Court decided Monday not to rule on a case brought by Life Partners, a Waco, Texas, provider, on whether states can regulate life settlements.

Life Partners had hoped the top court would resolve conflicting opinions on the matter in two federal circuit courts.

Life Partners had appealed a U.S. 4th Circuit Court of Appeals case in Richmond, Va., that went against the company on April 30. It upheld a lower court that said viaticals are to be considered part of the insurance business and thus can be regulated by states.

A 1996 decision by the U.S. Court of Appeals in Washington, D.C., ruled that Life Partners transactions did not constitute the business of insurance.

The Virginia case involved a viatical policy sold by a terminally ill woman who had invoked the state’s minimum pricing provision. Life Partners had paid her $29,000 for her $115,000 policy. But she later learned that she would have been entitled to at least $69,000 under the state’s pricing policy.

Utah Regulators Weigh Five-Year Waiting Period for Settlements

Utah insurance regulators met last week with representatives of the life settlement and life insurance industries to discuss proposed revisions to the state’s viatical law. Utah officials have not yet decided whether they’ll support a five-year waiting period before new policies can be settled.

Not surprisingly, the proposed waiting period was the most controversial item discussed at the Oct. 17 meeting. The waiting period is supported by the National Association of Insurance Commissioners (NAIC) as a means to thwart stranger-originated life insurance (STOLI) policies. These are policies taken out by people who intend from the start to sell them, primarily to benefit investors who don’t have any relationship with the insured.

“There were a lot of hard feelings between the two industries and it was apparent it will probably remain that way for years to come,” said Brad Tibbitts, director of the life and property casualty divisions for the Utah Insurance Department.

Those attending included Michael Freedman, senior vice president of government affairs for Coventry First, a Fort Washington, Pa., provider; Doug Head, executive director of the Life Insurance Settlement Association; Michael Lovendusky, vice president and associate general counsel for the American Council of Life Insurers; Michael Sonntag, Utah lobbyist for the National Association of Insurance and Financial Advisors; and Brent Scott of Equitable Life and Casualty Insurance in Utah.

Tibbitts said his staff plans to meet in another week or so about the five-year waiting period.

“It’s one of those issues that if it’s going to drag our bill down to the point where they [legislators] throw it out, we’re not going to make a big issue of the five-year thing,” Tibbitts said.

An apparent STOLI scheme prompted about 50 calls to the Utah Insurance Department
earlier this year from Utah residents about offers of free insurance, Tibbitts said.

“We had a rush of phone calls in the spring and summer months on stranger-owned life
insurance,” Tibbitts said. “Some were pretty bad. ‘You sign up for this and we’ll give you $100,000.’ In essence you loan us your name and we’ll give you all this money.”

The state believes several producers were involved in the situation and their names were sent to the department’s market conduct section for review, Tibbitts said.

Other changes to Utah’s viatical law proposed by the state’s insurance department include an expansion of Utah’s rescission period from 15 to 30 days after the insured receives his or her proceeds, and a new financial responsibility requirement for providers, according to Betsy Jerome, senior life analyst for the insurance department. The department also intends to establish a new rule requiring providers to put up a $250,000 surety bond. They’re currently required to put up only a $50,000 bond.

Jerome said the department wants to ensure that death benefits go to the insured person’s beneficiary in cases where the rescission periods on policies are still in effect when the insured person dies. In one family trust case in the state, it took four to five months for a beneficiary to receive death benefits, after the insured died during the rescission period, Jerome said.

Source: Life Settlements WireÂ