Life Settlements: Whose Responsibility Is It?
A majority of states now have laws regulating licensing, disclosures and transparency in life settlement transactions.
Legislation does not traditionally assign the responsibility of informing consumers that life settlement options are available. That is beginning to change.
Oregon, Washington and Maine now mandate that insurers notify customers about life settlements when they are about to surrender or allow a life insurance policy to lapse. If carriers are required to inform insureds, it is prudent to ask what responsibility other parties in the life insurance sphere of influence have to consumers?
Financial planners are inherently tasked as fiduciaries to their clients. One could reasonably assume that acting in clients’ best interests would involve advice that an existing life insurance policy may have value on the secondary market. In many cases clients do not receive this valuable information about one of their most important assets.
A number of financial planners operate under the umbrella of larger organizations, such as broker-dealers. Many of these have strict guidelines precluding their advisors from discussing life settlement opportunities with clients. As a result, clients may unknowingly walk away from value in life insurance policies they never knew existed.
While no laws currently oblige financial advisors to discuss life settlements, those that don’t include the option as part of a greater financial strategy discussion may be opening themselves up to legal liability. In our litigious society, it is easy to envision an unhappy client suing after they learn a policy could have been sold for 500% more than the cash surrender value.
Some financial advisors find themselves in a difficult position. They are tasked with looking out for their clients’ best interests but in some cases restricted as to the strategies they can discuss. With the financial services landscape constantly evolving, only time will tell if the consumers receive the information they need to make the best decision.