Life Insurance Buyout Offers from Carriers

While many of us were enjoying our summer vacations last year, there was important news that emerged from the 2022 National Council of Insurance Legislators (NCOIL) Summer National Meeting in New Jersey.

The members of NCOIL unanimously adopted a resolution that identifies “enhanced cash surrender value” endorsements by insurance companies as violating the Standard Nonforfeiture Law in effect at the state level around the nation.

Enhanced Cash Surrender Value

An enhanced cash surrender value option is a limited time “buyout” offer from a life insurance company that is higher than the life insurance policy’s cash surrender value but less than the death benefit. In other words, the mechanics are identical to a life settlement transaction — selling a life insurance policy to a buyer in exchange for a cash payout — but without the regulatory oversight, legal requirements and market benefits of the actual life settlement market. 

Therefore, notwithstanding the carriers’ ongoing attempts to undermine the suitability and benefits of the life settlement industry, they have been quietly implementing a marketing strategy that tacitly endorses the concept of selling a policy for cash.

In fact, NCOIL’s resolution targets these life insurance policy buyout offers from carriers as blatant attempts to “incentivize consumers to terminate their policies in exchange for large increases in cash surrender value,” according to the NCOIL press release.

“The Resolution notes that certain limited time, enhanced cash surrender value offers mimic life settlements, but the carriers offering them do not follow the consumer protection life settlement statutes created by legislators to protect policyholders,” reports Insurance News Net.

The insurer offers are problematic because consumers are denied rescission rights, intermediary fiduciary duty representation, physician certification of competence, disclosure of competing alternatives and various privacy protections that are codified into and staples of life settlement regulations throughout the U.S. The Life Insurance Settlement Association, of which Welcome Funds is a longtime member, led the charge in bringing this issue to the attention of NCOIL.

“Abdication of enforcement of a central consumer protection law amounts to regulatory nullification of and rewriting of the insurance code, and the displacement of the legislative branch’s sole lawmaking authority by the executive branch,” says the NCOIL resolution.

Moreover, advisors must understand that these enhanced cash surrender values are often calculated strategies from carriers to avoid paying out death benefits on policies that they view as risks to their profitability.

“Life insurers may have been offering (some of your extra) clients cash now to give up access to future streams of guaranteed interest payments,” reported ThinkAdvisor. “Some U.S. life insurers have tried to shed life insurance policy guarantee risk by using temporary cash incentives to persuade the holders to surrender their policies.”

It is likely that this issue will achieve even greater attention in the legislative arena in 2023. The NCOIL resolution has been distributed to the American Council of Life Insurers, each state’s Insurance Commissioner, the National Association of Insurance Commissioners, and the chairs of the committees of insurance jurisdiction in each legislative chamber of every state.

Life Insurance Policy True Market Value

How can advisors properly help their clients ascertain the true market value of a life insurance policy that they no longer wish to keep or can afford? The most pragmatic answer is to shop the life insurance policy via an open auction-based market, facilitated by a licensed and experienced life settlement broker, to qualified and licensed potential buyers. The value of that policy will be determined in real-time as the competitive marketplace defines what the policy is worth, from the first offer to the final offer.

Life Settlement Representation 

The only party within a life settlement transaction that has a fiduciary duty to policy owners is a life settlement broker, like Welcome Funds.  Life settlement brokers are obligated by state regulations to represent the best interests of policy owners during the entire sales process and to conduct themselves in an honest and ethical manner.

If a client or any policy owner decides that he or she no longer needs or can afford a life insurance policy, then please do not allow such policy to lapse or succumb to the temptation of automatically surrendering it back to the life insurance company for the cash surrender value, regardless of whether it is “enhanced” or not,  It is prudent to conduct simple due diligence instead by contacting a licensed life settlement broker, like Welcome Funds, who will provide a free market valuation of the policy.  Then and only then can a truly informed and consumer centric decision be reached about what to do with an unneeded life insurance policy.

If you would like to find out if you or your loved one qualifies for a life settlement, please complete our quick Life Settlement Qualifier. Our process is confidential and there is no obligation at any time. For more information about Welcome Funds please visit www.welcomefunds.com or call 877.227.4484.