How much should consumers know about their options when a contract is about to lapse? The issue was debated here during the summer national meeting of the National Conference of Insurance Legislators, Troy, N.Y.
State insurance legislators heard testimony but deferred action on the issue. Kentucky has just enacted legislation that mirrors laws in Maine and Washington State. Information is required to be provided when there is a lapse on a form that the Kentucky insurance department provides. The form is sent along with the notice of lapse, according to Rep. Bob Damron, D-Nicholasville, Ky., NCOIL president.
Michael Lovendusky, representing the American Council of Life Insurers, Washington, D.C., started the testimony by saying that it is akin to a Chevrolet dealer having to tell a potential customer about a Ford. But later, North Dakota Rep. George Keiser, R-Bismarck, NCOIL president-elect, said that a customer going into a Chevrolet dealer knows about Fords but policyholders may not have information on all their options including settlements.
Life insurers are opposed to a disclosure form that makes contract holders aware of a life settlement option for a variety of reasons, he said. One reason is that it fractures the relationship with a client and another is that it creates a false impression that a settlement option may be available when actually, it is not, according to Lovendusky. The result may be that thousands of dollars of premium paid may be wasted on an unwanted contract because of the expectation that a settlement option will be available, he noted.
A total of 85,596 policies were lapsed or settled and of that total, only 2 were settled, according to data cited by Lovendusky. The reason, he told NCOIL legislators, is that most policyholders do not fit the profile for a settlement candidate: over 70 with a universal life policy of $1 million or more.
Michael Freedman, representing Coventry, Fort Washington, Pa., said that seven states have adopted some disclosure requirement. These requirements, he said, are not about life settlements, but more broadly disclosure of all options when a policy is in danger of lapsing. These disclosure forms simply give consumers information about options that they may pursue. For instance, Washington State’s disclosure form lists eight options, one of which is a life settlement.
Chris Orestes, an agent and owner of a family long-term care facility business in Maine, said that a disclosure form provides information that makes it possible for families to look into ways for paying for an assisted living or nursing home.
Separately, NCOIL legislators decided not to pursue any model law addressing stranger-originated annuity transactions (STAT) at this time but rather to defer the issue until a need arises. The decision was made after legislators decided that there were enough tools including tighter underwriting to address problems that may arise.
ACLI’s Lovendusky agreed, saying that at the present time insurers are able to monitor STAT and that consumers are not in danger.
Doug Head, executive director with the Life Insurance Settlement Association, Orlando, Fla., said that legislators need to keep in mind that these transactions have nothing to do with the life settlement industry.