Investor Lawsuits: Don’t Get Burned By Life Settlements

by Marc Fitapelli | April 14, 2022 3:05 pm

Estate agent broker reach contract form to client signing agreem

Life settlements, sometimes called Senior Settlements, have been more aggressively promoted in recent years leading to many investor lawsuits. They can offer high earnings for brokers but their target market is small, meaning that promoters must take bolder actions to find people who are willing to take part in them.

Whereas Life Settlements can potentially offer immediate cash to policyholders, there are serious risks to be considered which could result in irreversible damage to your finances and your survivors. Moreover, the practice falls under strict securities regulations if it involves variable life insurance.

Lawsuits For Life Settlement Investments

If you invested in life settlement contracts and suffered losses due to fraud or other misrepresentations, then you may be eligible to file a lawsuit to recover your losses.  Contact our attorneys[1] at (800) 767-8040[2] for a free consultation and to determine if you are eligible to file a lawsuit. We are only paid if we successfully recover money on our clients’ behalf.

Process for Filing a Lawsuit Against Your Financial Advisor

History of the Life Settlement Industry

Life Settlements are one way to receive immediate cash for a life insurance policy that is more than the surrender value of the policy but less than the eventual death benefits. Policyholders—usually those with two to ten years of life expectancy—are offered a cash sum for their policies to relinquish them to a buyer who then either holds them indefinitely and collects on eventual death benefits, or sells them to investors to capitalize on the underlying portfolio (as in the case of variable life insurance).

The practice grew out of the viatical settlement industry that became popular during the AIDS Crisis of the 1980s.

Viatical refers to the last rites given to someone near death. The word was expanded to include anything that was done near death. Viatical Settlements refer to the practice of buying life insurance policies for people with less than two years of life expectancy. It offers terminal patients vitally needed and immediate cash.

Life Settlements differ only in that they are offered to people with two to ten years of life expectancy, and who are not terminally ill.

Life Settlement companies—another term for purchasers of Life Settlements—can do various things with the policies such as:

Hundred Billion Dollar Industry

One study indicated that the Life Settlement market hit as much as $100 billion in 2005. The boom in business has brought immense competition when attempting to find qualifying policyholders, with a commensurate rise in more aggressive marketing tactics.

Many Life Settlement companies claim to only target people who have already indicated a desire to sell their life insurance policies because they were no longer wanted, or because they could no longer keep up the premiums. But the glutted market makes aggressive marketing tactics necessary for these companies to continue to survive.

In the case of variable life insurance policies, the sale of the policy is considered a securities transaction and therefore falls under FINRA’s rules and any applicable SEC regulations. If you are dealing with a FINRA-registered advisor (which you should always do), then that advisor is legally obliged to act within your best interests.

Do You Still Need Life Insurance?

If you still need life insurance[3], you might not be able to get an equivalent policy with the same coverage. Also, because of your age or changes in your health, your premiums might be even higher. And you might need to pay taxes if the cash settlement of your policy is higher than the total premiums you’ve paid.

If you are considering a Life Settlement only to reduce premium payments, but still require life insurance, a so-called “1325 Exchange” might be more beneficial for you. The number 1035 refers to a section of the US Tax Code that allows you to exchange one life insurance policy for another without paying taxes on any gains earned on the original policy.

No Government Regulations Regarding Pricing

There is, unfortunately, no regulatory body around to ensure Life Settlement prices are fair. As such, transparency is lacking.

The only way to get an idea of whether you’re receiving fair prices is to shop around or to use a broker. Using a broker will add fees to the cost, and shopping around adds time. Neither results in complete transparency, either.

What about the Beneficiaries?

If you have survivors, cashing out your life insurance will leave them without benefits. If at all possible, speak directly with your benefactors to ensure that their circumstances are stable. Although they might not require death benefits at the moment, circumstances can change. There might be other methods of obtaining liquid assets to assist with any immediate difficulties you might be facing.

What about Medicaid?

There might be unforeseen financial implications as a result of the cash injection received from a Life Settlement. If you currently qualify for Medicaid, a change in circumstances might disqualify you and so burden you beyond what the Life Settlement payout can offer you. You might also be taxed should the Life Settlement payout be more than the total of the premiums you paid.

Sharing Medical Data

One enormous risk is the sharing of your medical data. You will likely be required to sign that you authorize your medical data to be shared with the buyer. There is no guarantee that the buyer will then keep that data secure and not share it as well. Seeing as PHI (Protected Health Information) is one of the most sought-after commodities on the identity-theft black market, handing this data over can have serious consequences.

High Commissions

Commissions can be as high as 30%. You should inquire in detail about what commissions your broker or advisor is receiving for recommending the Life Settlement to you to ensure that there are no conflicts of interest.

Did You Lose Money Investing in Life Settlements?

Endnotes:
  1. attorneys: http://www.mdf-law.com/
  2. (800) 767-8040: tel:8007678040
  3. life insurance: https://mdf-law.com/practice-groups/life-insurance-disputes/

Source URL: https://mdf-law.com/life-settlements/