The life settlement industry is regulated by a number of authorities, including the state and the federal government. The primary purpose of life settlement regulations is to promote the public welfare by maintaining regulations to prevent, detect and combat fraud within the life settlement industry. These regulations are set-up to promote full transparency of the life settlement industry and transactions of life insurance policies in the secondary markets. Other purposes are to provide consumers protection and ensure fair and ethical practices by those that handle life settlement transactions.
To get a better idea why some states have elected to begin regulating the life settlement industry you must first understand a life settlement.
A life settlement happens in the secondary market when a buyer competes for the purchase of a life insurance policy and pays a lump sum of cash to the policyholder for the right to receive the benefit at the time of death. Life settlements are transactions that take place between a buyer (typically a financial institution) and seller (the policyholder). Life settlements enable policyholders to rid unneeded, unwanted, unaffordable or otherwise under performing life insurance policies. On average, a life and viatical settlement yields a significantly higher return than the cash surrender value offered by insurer for the same policy. Due to the overwhelming increase in life settlement transactions in the past and the increase of companies offering services related to life settlements, regulations and laws have been past to promote fair and ethical standards for those whom so business in this market.
It is very important that life settlement companies, agents, brokers and other entities entering into this market fully understand and obey the law and regulations handed down by federal and state agencies. While the federal government plays an important part in legislation each state has its own laws and regulations regarding life settlement transactions.
States have departments, divisions, commissioners or boards that oversee matters relating to life settlements. Some of their duties include:
- Issuing of rules and regulations
- Licensing and supervising
- Promoting transparency
- Investigating consumer complaints
- Deter & prevent fraud and unethical practices
Why most states have regulations over the life settlement industry, not all states require individuals to be licensed. When going through the life settlement process it will be important to make sure the company or person that is handling the sale of your life insurance policy fully understands the rules and regulations for the respected state. It is very likely if they are not fully licensed and/or abides by state laws, a transaction will be null and void; you will have to start the process over with a company that is licensed and abides by the rules and regulations of the respected state.
Over the last several years, there have been new laws that have taken effect to authorize and regulate life settlements within states that previously had no regulations. The legislation assures life insurance consumers are educated and understand the fair market value for unneeded or under performing life insurance policies.
Life settlement laws are set-up to make settlement transactions more secure and more accessible to consumers. These laws also assure consumers the right to be informed about life and viatical settlements and to be protected throughout the funding process.
If you are considering selling your life insurance policy be sure to speak with an experienced and licensed life settlement broker, agent or company that can assist you in the sale of your policy. For additional information on regulations within your state, visit the following links: Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin, Wyoming and the District of Columbia D.C.
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