It's time to enact national Life Insurance Consumer legislation
By Chris Orestis
Life Care Funding
First, it was passed in Washington State. Oregon and Maine soon followed with similar laws and now, more states are in the process of following their lead. The Life Insurance Consumer Disclosure Law started out small, but is now growing quickly. And now, the National Conference of Insurance Legislators (NCOIL) is drafting a model law for every state legislature in the country. It will require that life insurance companies inform policy owners that they have numerous alternative means to extract value from their policy at the time they are considering allowing it to lapse or surrendering it for any remaining cash value.
What is remarkable is the fact that this law began to surface as these states were looking at model legislation that would rightly put an end to Stranger Owned Life Insurance (STOLI) contracts. The problem for the consumer was that these laws would also make it more difficult to access the life settlement market. The life insurance industry had been using the STOLI issue as a means to disrupt the legitimate life settlement marketplace, but in these three states, their strategy backfired.
The insurance commissioners and lawmakers in those states recognized the valuable opportunity a life settlement and other options might offer as an alternative to lapsing or surrendering a policy. They did not want to see impediments to their citizens’ ability to access the secondary market to realize the maximum value of a life insurance policy. So, these states passed laws mandating that it is the responsibility of the insurance company to inform their policyholders at the time of a lapse or surrender of the existence of alternatives.
In July 2010, during the annual summer meeting of the National Conference of Insurance Legislators (NCOIL), the debate between the life insurance industry and groups advocating for consumer rights played out during a hearing before the Life Insurance and Financial Planning Committee. The 25 lawmakers from around the United States comprising this committee were considering the merits of adopting a national model for legislation based on the precedent set by the three early states to enact life insurance consumer disclosure laws. They invited the American Council of Life Insurers (ACLI), Coventry First, and Life Care Funding Group to present their respective views.
ACLI, on behalf of the life insurance industry, made clear their staunch opposition to any form of consumer disclosure. They warned that the consumer might become confused or suffer from unrealistic expectations if they were to be given information about their rights and options as the owner of a life insurance policy. They described the idea as “abhorrent,” and spoke of the need for a “good shepherd to protect their flock of sheep.”
Life Care Funding Group followed by speaking about the importance of giving seniors and their families as much information as possible about their legal rights and options. Many of the families the company encounters are uninformed about their rights and have, or were about to allow, a life insurance policy that they no longer could afford to lapse or be surrendered for pennies on the dollar. Many of the families helped by Life Care Funding Group have a need to pay for expensive long term care services, and the committee recognized the importance of using an asset that otherwise would be discarded to help cover these costs.
I also testified before the NCOIL committee, and here is an excerpt from my speech:
We are living in a time when we must be doing all we can to get as much information as possible into the hands of seniors. When a senior and their family is informed that an asset (life insurance policy) they are about to throw away has unrealized value for them, and it is a potential solution to a health care crisis they are confronting, the consumer wins when they are able to access the most appropriate form of long term care and the state wins when a citizen is able to extend their ability to cover the costs of long term care for as long as possible before accessing Medicaid.
The lawmakers from around the country participating in the session agreed that consumer disclosure is an important right for the owners of a life insurance policy. Upon the conclusion of the meeting, they voted on and approved a measure calling for the drafting of a national legislative model that the legislatures of all 50 states should consider for enactment by this fall.
In an official statement issued on July 12th, Georgia State Sen. Ralph Hudgens reported to NCOIL's executive committee that he was asking Kentucky Rep. Ron Crimm to craft a life insurance options model bill in the next few weeks by melding similar laws that already have passed in Maine, Washington and Kentucky. Hudgens said he expects the model act will be taken up at NCOIL's November meeting in Austin and then adopted.
The model would actually take the disclosure requirements to the next level, by specifying numerous alternatives to lapsing or surrendering a policy. The option for a life settlement would be one of as many as a dozen choices a policyowner could consider. Options such as converting a policy’s death benefit to a long term care benefit, annuities, loans and accelerated death benefits would also be part of the mandated disclosure.
NCOIL is inviting public comment on the model law, and Kentucky, California, Wisconsin and New Hampshire are all currently developing adoption of the law in their states.