Life Settlement Scare Tactics

Recent life settlement cases have been a telling snapshot of the sometimes conflicting dynamics within the life settlement industry. It is no secret that life insurers often have a guarded view of the life settlement industry or anyone that is attempting to sell their existing life insurance policy. Life insurance companies would obviously rather have a policy owner let their policy lapse than have it stay in force and result in the death benefit payment.

However, the lengths to which life insurers are going to stall or impede the life settlement process is sometimes dramatic. A nice parallel was recently drawn to the healthcare industry. In that industry, physicians and pharmacists often utilize the latest and greatest medicine with patients in an attempt to provide the best health care possible. Even though the latest and greatest medicines are often the most effective, they are commonly the most expensive. Health insurance companies almost invariably prefer the patient to take a less expensive generic and older product. It is in the insurance company’s best financial interest to get the patient on the cheapest treatment, even if it means that the patient will get a less than optimal medicine. They are doing what is in the best interest of the insurance company, not what is in the best interest of the consumer or patient. To do this health insurers undertake a strategy called “counter detailing”. The counter detailing efforts target physicians and pharmacists, by attempting to plant doubt and provide reason for second guesses about using the superior, more expensive medicines. They contact physicians and pharmacists to push the old, LESS EXPENSIVE generic medicines. They are essentially trying to negate beneficial information about new medicines that could possibly help a patient. One of the most common tactics is in the pharmacy. Health insurers will push pharmacists to change patients’ prescriptions to generic medicines once they are received at the pharmacy. Regardless if the old, generic medicine is inferior and not the best suited for the patient, it is less expensive for the insurance company. So the counter detailing goes on and consumers suffer.

Consumers, who are policy sellers in life settlements have also been subjected to counter detailing. Recent policy sellers have anecdotally reported that insurance companies have made the insurance documentation request process difficult. For example, an 84 year old man who no longer needed his $500,000 policy and really didn’t want to continue paying the high premiums recently called his insurance company to clarify the premium payments and cash surrender value. When he mentioned selling his policy, he reports that “the insurance company really tried to scare me about a life settlement”. He went on to say that the insurance company warned him that “life settlement proceeds will be taxed and could jeopardize his ability to participate in government assistance programs, amongst other things.“ Unfortunately, the counter detailing this gentleman received was filled with half truths and misleading information. For example, when he was later asked what government programs he was participating in that were based on income and might be affected by receiving a large payment for his insurance policy, he couldn’t think of any. Yet he was made to believe that a life settlement would somehow adversely affect him. To make matters worse, as the gentleman was explaining he didn’t need the policy any longer and the premiums were becoming burdensome, he was taken advantage of yet again. This man’s policy had accumulated a large amount of cash value. That cash value could be used to pay premiums on an ongoing basis rather than him paying out of pocket. However, the insurance company made no mention of that fact. Rather, when he asked how much his next bill was, they answered with the high premium rate and conveniently forgot to tell him he didn’t need to pay anything to keep the policy in force. Thankfully this charming senior did a life settlement appraisal and found that his policy did have value if he sold it. So he in turn requested insurance documentation to begin the life settlement process. However, the insurance company dragged their feet with process, taking over a month. That was only after several phone calls and repeated escalation of the delay issue to senior supervisors. It is not surprising however, that had information been requested for this man to buy a new insurance policy it would have most likely arrived much sooner. Probably within days, if not hours.

Is all of this to say life insurance companies are evil and without merit? No, not at all as they certainly have a place. Rather these anecdotal stories are reminders that consumers and their trusted advisors need to collect information on their own and proactively make well informed decisions. Insurance companies are charged with making a profit, not providing financial advice to consumers. That is the important thing to remember as one is considering a life settlement. In fact, recent laws have protected consumers by establishing timelines in which insurance companies must provide information needed for life settlements. California’s recently signed life settlement legislation did just that. It is a good reminder that life settlements are an option that can be very beneficial for consumers. Furthermore it is reassuring that states are legislating protection of that right by holding insurance companies responsible for impeding the process.