Rhode Island: One Step Closer to Requiring Life Settlement Disclosure
Knowledge is power for seniors focused on the optimal management of their finances, and a recent movement of state disclosure laws will increase consumer understanding of their life settlement options.
Studies show that consumers who sell their life insurance policies receive four to seven times more money than they would receive from surrendering policies, yet the Life Insurance Settlement Association reports that 90 percent of policies are allowed to lapse without any benefit going to the holder or beneficiary. One contributing factor in this situation is the tendency for some life insurance carriers to stay quiet about the rights of their policy holders.
With an eye on their bottom line, some insurance carriers go to great lengths to keep life settlement information out of their customers’ hands, even penalizing insurance agents who disclose the full menu of options to their clients. But this industry “gag order” is being removed, one state at a time, by lawmakers advocating for their constituents’ right to information.
On May 23, Rhode Island came a step closer to becoming the ninth state to require consumer disclosure of life settlement options when its bill passed the House of Representatives Corporations Committee. The law, which requires insurance companies to notify policy holders older than 60 who have chronic or terminal illnesses that they have the option of selling their life insurance policy, will take effect on October 1 if passed by the full legislature.
Kentucky, Maine, Georgia, Florida, New Hampshire, Oregon, Washington, and Wisconsin have all passed similar consumer-disclosure laws since 2016, and a bill has been introduced in Texas. Several lawsuits have also been filed by individuals against their insurers in an effort to hold life insurance carriers accountable for their failure to give policy holders full access to information about their life insurance.
A class action lawsuit filed against Lincoln Financial in California, which was settled before reaching summary judgment, alleged that Lincoln Financial engaged in a “common and systemic practice” of “failing to inform and/or concealing from its insureds the option of a life settlement in connection with their life insurance policies.” According to the filing, Lincoln “purposely omits this information from Plaintiffs and Class members because it knows that other options, such as surrendering the policy (in whole or in part) or letting it lapse, will generate greater profits to Defendant than a life settlement would.”