Study finds that misinformation about life settlement investments persists despite industry growth

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by Jim Orr

A recent survey has found that despite recent growth in the life settlements industry, these financial transactions remain misunderstood by many financial advisors. According to the survey by the Lifeline Program and WealthManagement.com, some financial advisors are confused about state and federal laws surrounding the sale of life settlements, or mistakenly believe that these transactions are not available to their clients.

Life settlement investments accounted for $1.65 billion in investments in 2014, involving nearly 850 financial transactions. Experts have reported an increase in the number of policies sold involving smaller face values, enabling more life insurance policy holders to sell unwanted or unnecessary policies to investors.

However, despite these signs of growth, many financial advisors are unfamiliar or misinformed about life settlement transactions. According to the survey, 40% of financial advisors only have a limited familiarity with life settlements or are entirely unfamiliar with these transactions. Only 11% of the financial advisors who were surveyed had assisted in the sale of a life settlement or had recommended these transactions to their clients.

Financial advisors cited a number of explanations for their low rate of involvement in the life settlement industry. Some advisors believed that they needed special qualifications in order to sell insurance policies in the form of a life settlement transaction or believed that these investment sales were only available to terminally ill clients. Other financial advisors had mistakenly confused life settlements with so-called stranger originated life insurance, or STOLI, transactions.

One aspect of life settlement investments that many financial advisors seemed to understand well was the groups of clients that could be best served by selling their insurance policies in the form of life settlements. Nearly 50% of financial advisors said that they would advise clients who were already planning to let their insurance policy coverage lapse or who held unnecessary life insurance policies to sell their policies in the form of life settlements.

Life Settlement Investments and STOLI

In some cases, insurance companies have refused to pay the death benefit on valid life settlement policies because they claimed that they were STOLI policies. Because many states lack clear regulation regarding life settlement investments, claims of STOLI by a life insurance company can end up costing life settlement providers or investors who purchase these policies the entire value of the investment.

The law firm of Heygood, Orr & Pearson has filed lawsuits on behalf of companies that sell life settlement investments. Some of these cases have involved insurance companies that refused to pay the death benefits on a valid insurance policy because the insurer claimed that it was a STOLI policy.

Heygood, Orr & Pearson has also handled litigation involving investors who were misled by a life settlement provider about the value of their life settlement investments or who were charged excessive amounts based on bogus life expectancy estimates.  Our lawyers have also filed cases on behalf of brokers who handle life settlements.

For a free legal consultation from an attorney to find out if you may qualify to file a lawsuit, contact the law firm of Heygood, Orr & Pearson by calling our toll-free hotline at 1-877-446-9001. You can also reach us by following the link to our firm’s free case evaluation form and answering a few simple questions about your case.