LEGAL FOCUS
Life Settlements:

The Legitimacy of a Long-Term Care Funding Source

With our tough economic times, seniors and their families are turning to nontraditional funding alternatives for senior housing and care. Many seniors are unaware that their life insurance policy is a valuable asset that can be liquidated to pay for their care needs as they grow older. Consumers can benefit from understanding the legal rights of insurance policy owners in order to fully understand the true worth of this asset at their disposal.

The right of a policy owner to engage in a life settlement was guaranteed when U.S. Supreme Court Justice Oliver Wendell Holmes ruled in 1911 that life insurance is personal property and the owner is protected by all the same inalienable rights that an owner of real estate, stocks or any other assets enjoys. This decision established a life insurance policy as transferable property that contains specific legal rights, including the right to:
    • Name the policy beneficiary.
    • Change the beneficiary designation.
    • Assign the policy as collateral for a loan.
    • Borrow against the policy.
    • Sell the policy to another party.

In a 2003 study conducted by Conning & Co., it was estimated that 90 million senior citizens owned approximately $500 billion worth of life insurance, of which more than $100 billion was owned by seniors eligible for life settlements. The Wharton Business School issued a study, observing that, “Life insurance policies are typically assignable, which means that a policyholder is free to transfer their ownership of the policy to another person. A policyholder’s right to assign their policy to someone other than the insurance carrier has existed for some time.” The study also went on to observe that a life settlement, “gives the policyholder the economic freedom to choose between a number of buyers and, in so doing, to receive the fair market price for their policy.”

A number of insurance industry organizations such as the National Association of Insurance Commissioners (NAIC), National Council of Insurance Legislators (NCOIL), American Council of Life Insurers (ACLI), National Association of Insurance and Financial Advisors (NAIFA), American Association of Life Underwriters (AALU) and the Life Insurance Settlement Association (LISA) have also recognized the legal rights of a policy owner to liquidate a life insurance policy through a life settlement.

During a panel session at ReFocus 2008, jointly presented by the ACLI and the Society of Actuaries, industry CEOs agreed on the need for life settlements. Stuart Reese, chairman, president and CEO of MassMutual Life Insurance Company, said that if a policy is first purchased with protection in mind and is no longer needed after a period of time, then a contract holder does have property rights and “there is a legitimate life settlement business which is consistent with the purpose of insurance.”

“The life settlement industry provides an important and efficient function to the insurance marketplace — and it is a practice established by the Supreme Court,” says Chris Orestis, President of Life Care Funding Group. “In light of the longstanding Supreme Court ruling on the transferability of insurance as property, those holding a policy that they no longer need will always be able to maximize the value of that property through a life settlement transaction.”

Families experiencing financial hardship who thought they were out of options can potentially fund senior housing or care with an untapped asset for immediate cash.

Consumers can get a quick response about their eligibility to liquidate their life insurance policy to help underwrite care needs by going to www.seniorcarefunding.com and completing a quick survey. [CIP]