Not Really A Securities Matter, But A Financial Matter Nonetheless
In the November 2009 issue of SmartMoney, contributing editor Peter Keating wrote about the growing life insurance settlement industry and some of the issues surrounding it (see Liquid Life Insurance). Although The Financial Commonplace Book typically addresses current issues involving securities, I wanted to take the opportunity to comment on this important financial matter.
As background, in a life insurance settlement (or a “life settlement”) an individual sells his or her life insurance policy to a third-party. This new owner pays any remaining premiums to keep the policy in-force and collects the policy’s benefit when the original owner dies. Mr. Keating reported that this industry grew six-fold in the five-year period ending in 2007. This is not surprising inasmuch as defined benefit retirement plans continue to decline in our society while life expectancies continue to rise.
It seems to me the issues that Mr. Keating identified apply to securities transactions as well as life settlements. That is, individuals should understand their proposed life settlement’s potential benefits, risks and fees, just as individuals should understand the same factors concerning their investments. Investors are also well-served to remember that, like with any investment, if the proposed life settlement sounds too good to be true, then it probably is. Finally, learn as much about your broker as you can before agreeing to do business with him or her. Although there is no central repository of information on life insurance brokers – like FINRA’s BrokerCheck – it is worthwhile to consult your state’s regulatory bodies and to ask your broker for references. (November 3, 2009)