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ISSUED 11/03/2008 FOR IMMEDIATE RELEASE

PUBLIC HEARINGS TO SOLICIT CITIZEN INPUT ON LIFE SETTLEMENTS

Insurance Department to Conduct Hearings Starting Thursday, Nov. 6 on Long Island and Later in New York City, Albany And Rochester

Television personality Larry King and a Rochester area landscaper lead very different lives, but both men see themselves as victims in schemes using life settlement contracts, transactions involving the sale of a person's life insurance to unknown investors. Getting quick cash by selling your life insurance may look like an easy option for people who are financially squeezed, but consumers may be unaware of the sometimes large downside risks of doing so.

The New York State Insurance Department on Thursday, Nov. 6 will begin a series of hearings to gather citizen input on the pros and cons of life settlements. Life settlement arrangements involve transactions where individuals sell their insurance to receive cash payments. The payments are typically worth more than the surrender value of life insurance policies, but less than the death benefits.

"Life settlements are complex financial transactions. There may be a good reason for an individual to sell his or her policy. There have also been reports of abuse. These hearings are designed to obtain public input, particularly from senior citizen groups, consumer organizations and individuals who have experience being solicited or who have entered into life settlement transactions," Insurance Superintendent Eric Dinallo said.

The hearings will begin on Long Island and then continue in New York City, Albany and Rochester. The public input sought by the Insurance Department will be used to develop a bill that will address life settlement transactions.

"In these times of economic uncertainty, there is strong pressure on people pressed for cash to sell valuable assets such as their life insurance policies. And there are some people who see buying life settlements as good investments because they eventually will receive the death benefit from the life insurance policies. In either case, consumers must be fully aware of what they are getting into and the issues involved in a life settlement," Dinallo said.

Those issues include transparency and the absence of disclosure requirements on sales commissions and other fees. For example, a person selling his or her life insurance policy may have no idea how much money goes to the brokers and middlemen involved in the transaction. Fees and commissions are largely unknown because the life settlement business is unregulated in New York and most other states.

The Larry King case attracted public attention last year when King said he purchased two insurance policies on his life totaling $15 million. He reportedly received more than $1 million when the life insurance policies were sold to unknown investors. However, King later claimed he was never informed of the consequences of what he was doing.

The consequences people face when buying or selling their life insurance policies in life settlements potentially include:

  • Reducing or eliminating the individual's ability to buy future life insurance.
  • Tax liability on the cash paid to the policyholder when the policy is sold and to the investor when the insured individual dies.
  • The transfer of highly personal information on the insured individual's life and health to unknown people.
  • The possible requirement to pay substantial additional premiums just to keep the purchased life insurance policy in force until the insured person dies.

A troubling aspect of these transactions is that investors buying life settlements have no vested interest in the policyholder's well-being since they profit only with the death of the policyholder.

In the case of the Rochester landscaper, the man said he was persuaded to invest in a life settlement using the entire amount of his retirement savings, $20,000. He said he was misled and only learned afterward that he had to come up with additional payments, including one for $1,600, to preserve his initial investment.

Since 2005, the New York State Insurance Department has received more than 60 complaints from people involved in life settlement transactions. These include allegations of abuse and misrepresentation in both the purchase and sale of insurance policies tied to life settlements. These complaints include:

  • The case of a couple who invested in an insurance policy on the life of a Nassau County woman. The couple contacted the Department after learning they never received title to the life settlement contract they bought. They had also discovered that their transaction was linked to a California company whose owners are accused of stealing $25 million from 500 investors. The owners pleaded not guilty and the case is still pending, but the status of the couple's investment remains unclear.
  • People who say they are faced with losing their investments unless they continue to pay high premiums and administrative fees. One such case involved the widow of a Wayne County man who invested $82,000 to purchase three life settlement contracts. The woman contacted the Department when she learned she would lose her investment unless she made an additional payment of $5,759 to cover premiums and fees.
  • A complaint filed on behalf of an 82-year-old woman in Central New York who was solicited to invest in three contracts and turned over 60 percent of her life savings, totaling $200,000. The woman said she was not advised about the risk involved in her investment, particularly that additional premiums might have to be paid. She later learned the contracts were unsuitable because of her age and investment history. Ultimately, rather than pay additional premiums, she sold one of the three contracts she had purchased, recouping just $100 of her $50,000 investment.

The Department plans to introduce a bill addressing life settlements to the Legislature in 2009. The life settlement business is estimated nationwide to be a $15 billion a year business and growing.

The four public hearings will allow consumers and other interested parties to testify. Any person wishing to testify may sign up at the Department's website, www.ins.state.ny.us. Persons without Internet access may contact the Insurance Department's Public Affairs Bureau at (212) 480-5262.

Written comments for the hearing record may be submitted via the Department's website, www.ins.state.ny.us; by mail to Life Settlement Hearings, Public Affairs Bureau, New York State Insurance Department, 25 Beaver Street, New York, New York 10004; or by e-mail to PublicHearingsComments@ins.state.ny.us with the subject line "Life Settlement Hearings."

Comments will be accepted by the Department for up to 15 business days after the last public hearing. Individuals need not attend the public hearings to submit testimony.

The public hearings are scheduled between 10 a.m. and 5 p.m. on the following dates:

Thursday, Nov. 6:SUNY College at Old Westbury
Multi-Purpose Room A, Student Union Bldg.
223 Storehill Rd.
Old Westbury, New York 11568
Friday, Nov. 7:New York State Insurance Department
5th Floor
25 Beaver St.
New York, NY
Thursday, Nov. 13:Convention Center,
Meeting Room #7
Empire State Plaza
Albany, NY 12242
Friday, Nov. 14:Central Library of Rochester & Monroe County
115 South Ave.
Rochester, NY 14604

 

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