New York State Insurance Department Acts to Protect Consumers’ Ability to Access Secondary Market for Life Insurance

Category LISA
Posted Date 03/15/2011
Publish By Marketwire
Publish Date 03/15/2011
Rating Positive

New York ruling confirms a consumer’s right to sell their term life insurance policy

Marketwire, 15 March 2011

The Life Insurance Settlement Association (LISA) applauds a legal opinion issued by the New York Department of Insurance Office of General Counsel against John Hancock Life Insurance Company on February 25, 2011. The opinion requires the insurer to convert term insurance policies that will be sold in the secondary market. The letter states that John Hancock, “may not deny [the consumer’s] request to convert her convertible term policy on the basis that she intends to settle the converted policy.”

Hancock had improperly refused to convert a term policy to a permanent life policy asserting that the converted policy would be a “new policy” and insurable interest requirements would apply. In its letter, the Department concludes that Hancock may not deny the request, “because: 1) a conversion, to the extent that there is no increase in the death benefit, is a continuation of the policy being converted; 2) is not prohibited by [law] from converting the policy; and 3) the Legislature did not intend [the law] to limit otherwise legal conversions.”

“John Hancock’s conduct against their own policyowner is another example of the anti-consumer actions insurance carriers employ to deny their own policyowners the basic right and opportunity to avail themselves of the maximum value for their unwanted and/or unneeded life insurance policies,” says LISA Executive Director Darwin Bayston. “Rather than receive no value when a term policy lapses, a policyowner may qualify for a cash payment through a life settlement. John Hancock’s actions deny consumers that right. The significance of this ruling for consumers and the secondary market for life insurance is vital to the fundamental property and contract rights of all policyowners.”

In another important case, Coventry First, a life settlement provider, filed suit in a California district court alleging Hancock is “denying its life insurance customers the fair market value of their insurance policies.” Documents attached to the complaint indicate that Hancock purchased the policy, and in so doing, “acted as a life settlement provider without having sought or obtained the necessary license” to do so.

In most jurisdictions, and certainly including California, life settlement entities must be licensed. Among other reasons, a consumer who “settles” a policy through an unlicensed settlement company forfeits the potential tax-free treatment of some settlements. Regulators should tenaciously pursue and censure unlicensed settlement entities and insurance carriers should be no exception.

In most term policies, the right to convert is a right established in the policy contract, and an attack on this property right should not be tolerated. John Hancock and other insurers are trying to rewrite history when they claim a converted policy is somehow new. It is the same coverage they originally sold to the consumer, it is simply continued in a new policy form, which, again, is part of the rights guaranteed in the original contract, Bayston notes.

LISA, which is comprised of representatives from the life settlement industry, is committed to protecting the rights of consumers to obtain the fair market value of their life insurance policies and advancing the secondary market for life insurance.

Click here to view the OGC Opinion regarding “Policy Conversions Preceding Life Settlements”

Click here to view the Coventry First LLC vs. John Hancock Life Insurance Company Complaint, dated March 2, 2011

For the Coventry First LLC vs. John Hancock Life Insurance Company Exhibits, click here.

For more information contact:
Darwin Bayston
Executive Director
Life Insurance Settlement Association
407 894 3797

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