The SEC's Life Settlements Task Force issued a report recommending
that the agency ask Congress to officially categorize life settlements
A life settlement is a financial transaction in which an older adult sells
his/her life insurance policy to an investor for a lump sum payment. The
investor then makes the monthly payments on the policy and is entitled
to the payout upon the holder's death. Over recent years, the sale
of life settlements has exploded into a controversial billion-dollar industry.
One of the central controversies focuses on the thin line between a life
settlement transaction and a STOLI (Stranger-Originated Life Insurance)
investment. Stranger-originated life insurance investments are coming
under increasing scrutiny from state and federal regulators. The Ohio
Department of Insurance, for example, recently issued a
consumer alert, warning consumers to "proceed with caution" when considering
participation in a STOLI arrangement.
According to one perspective discussed in the InvestmentNews article, defining
life settlements as securities would enable concerned states like Ohio
to properly regulate "legitimate life settlements" while preventing
"abusive transactions, including almost all forms of stranger-originated
A main argument against the Task Force's recommendation rests on the
supposition that the SEC already has the authorization to regulate some
of life settlement transactions as securities under certain circumstances.
Ohio investors will have to wait and see which side the SEC decides to take.