FINRA Posts Life Settlement Guide for Consumers

What You Need to Know

FINRA cites the difficulty of getting a fair price as a life settlement risk factor.
It encourages investors to get help from licensed life settlement brokers and their own investment professionals.
It also acknowledges that selling policies may make sense for some investors.

The Financial Industry Regulatory Authority has posted an investor alert aimed at older investors who are thinking about selling their in-force life insurance policies to others through life settlement transactions.

FINRA lists many reasons for investors to be careful when they’re selling their policies. “If you feel that you’re being subjected to high-pressure sales tactics or other aggressive advertising, marketing and sales efforts, beware,” the Washington-based regulatory organization says in the alert, which is aimed at retirement savers.

But, elsewhere, FINRA states, “A life settlement might make sense for you if you no longer want or need your current policy — or if you can no longer afford the expense of paying insurance premiums and are willing to give up or replace the coverage.”

What It Means

FINRA has noticed that many companies are working hard to buy your clients’ life insurance policies.

The History

The modern life settlement market descends from the viatical settlement industry, which sprang up in the 1990s, in response to the HIV epidemic.

The National Association of Insurance Commissioners adopted a Viatical Settlements Model Act in 2007. The NAIC later adopted several act updates and posted its own life settlement guide.

The Securities and Exchange Commission posted a life settlements task force report in 2010 and an investor bulletin in 2011.

FINRA itself posted a life settlement regulatory notice aimed at the firms it supervises in 2009.

The Guide

In the new guide, FINRA emphasizes that investors should consider the consequences of selling a policy to the survivors, potentially less costly alternatives to policy sales and the difficulty of determining fair policy prices when thinking about life settlements.

The best way to get a fair price “is to shop around,” FINRA says. “This can mean contacting multiple life settlement companies, using a licensed life settlement broker who will shop your policy around on your behalf, or contacting your investment professional or other financial services provider. You can also use a self-directed online exchange to get an estimate, though doing may result in sales calls or emails.”

FINRA also encourages investors to pay attention to transaction costs and privacy.

“Carefully read the application, and make sure that the company has procedures in place to protect the confidentiality of your information,” FINRA says. “If it will be sold, ask to whom and whether the end buyers will have access to your personal information.”

FINRA suggests working with licensed life settlement brokers to get policy pricing information.

It also recommends that investors consider talking to their investment professionals or other financial services providers and state insurance commissioners.