Life settlements have received a lot of negative attention due to the industry’s
high fees and aggressive sales tactics. Now there is another set of potential
problems associated with life settlements.
A life settlement is a financial transaction in which an older adult sells
his or her life insurance policy to an investor at a discount to face
value. In the past, people would sell their policies to investors in exchange
for a lump sum-payment.
There have been a lot of recent concerns over securities that package
life settlements and use them to back the sale of notes. The worry of
some regulators is that these policies could be overvalued or even falsified.
The Wall Street Journal, last year, Texas investigators seized approximately $20 million in assets
from National Life Settlements LLC of Houston. The company supposedly
sold secured notes backed by life-settlement contracts and promised investors
up to 10 percent annual interest. The state of Texas considered the investments
to be unregistered securities. A court-appointed receiver testified that
the company paid new investors with money from earlier ones, instead of
investing in life settlements. The principals of National Life Settlements
eventually settled the claim without admitting to the charges against them.