on October 4, 2014 by admin in Insurance Industry, Comments (0)

Are life settlements bad for insurance companies?

Insurance companies also fear that life settlements would draw attention to the tax treatment of life insurance. Somehow, they argue, life settlements could be viewed as a tax dodge. Yet, the opposite is true.

Policy owners are taxed on the gain at the time they sell the policy and investors are, ultimately, taxed on the death proceeds under the transfer for value rule. Life settlements, therefore, create tax revenue.

Another factor for insurance companies is headline risk. The idea that investors could profit on the death of an unrelated third party can be uncomfortable. Perhaps they don’t want life annuity purchasers to realize that, similarly, the sooner they die, the more profitable it is for the insurer that issued the annuity.

Overlooked is the real headline risk that insurers would once again be considered anti-consumer by depriving seniors of the life settlement option. The industry surely does not need yet another black-eye like the failure to use the Social Security Death Master File to find deceased insureds or the controversy regarding retained asset accounts. Yet, the industry seems determined to shoot itself in the foot once again by failing to recognize the more substantial risk.

The added possibility of a life settlement, when a policy is no longer wanted, needed or affordable, makes life insurance a bit more attractive. What other industry would oppose something that actually makes their product more valuable?

Instead, insurers should embrace life settlements by endorsing the education and training of their producers about life settlements — and by promoting an orderly life settlement marketplace rather than being a disruptive force.


Read also these columns by Katz and Weinberger:

Working with advisors: The good, the bad and the ugly

4 cases that show how life settlements have bounced back

Life settlements and insurable interest: the historical basis



Article source: http://www.lifehealthpro.com/2014/10/03/are-life-settlements-bad-for-insurance-companies

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