Article Rating:
Finally, after many years, the life insurance industry in Florida is being reined in. Many people who own and pay premiums for life insurance every month assume that, at some point, they may have to let their life insurance lapse. Some find they can no longer pay the premiums, which in the case of term insurance, skyrockets with advancing age. Others simply feel they no longer need a large life insurance policy because their children are grown. They’d prefer to spend their money for other more pressing needs—perhaps for healthcare, for example.
Insurance companies have systematically avoided telling people they have options far more beneficial than “closing out” a policy.
According to Darwin M. Bayston, CFA, President, and CEO of the Life Insurance Settlement Association (LISA), a new law passed in Florida has changed the life insurance industry. “Consumers have a scored a victory in Florida, as they will now be in a position to be informed of a range of options available to them if they own a life insurance policy they no longer need or can afford.”
Let’s take a look at how you can be short-changed, then at what this new law does for Floridians.
Life Settlement Regulation and The Old Florida Life Insurance Laws
In the past, insurance companies allowed their agents to offer only three options for closing out a policy. In some cases, agents who offered any other option found themselves at risk of losing their jobs. The only three options they were allowed to talk about were these,
- Let the policy lapse. [1] When a policy lapses, the insurance company is no longer obligated to pay a death benefit. However, many kinds of life insurance accrue cash value over the years. When a policyholder fails to pay premiums on those policies, the policy goes into a grace period that varies with each company. During that period the cash value of the policy is used to pay premiums. However, at some point, that cash value will be depleted, giving the policyholder a triple penalty. He or she can no longer cash in the policy; no death benefit will be paid; and, the policyholder has lost the value of premiums paid over the years.
In the case of term life insurance, which does not accrue cash value, the policy goes into a grace period immediately after the policyholder fails to pay a premium. If the premium is not paid during the grace period, the policy is cancelled.
Insurance companies understand this very well and anticipate a certain percentage of policies will never pay out anything. That’s a desirable outcome for insurance companies as it increases their profitability, but at the expense of its customers.
- Surrender the policy. [2] If a policyholder decides to surrender a policy that accrues cash value, he or she will receive a cash payment that is some fraction of the death benefit amount. For example, a $100,000 policy may accrue a cash value of, say, $20,000 when the policy reaches maturity. If the owner has taken out any loans against the cash value and failed to repay them, the amount paid at surrender is reduced accordingly. Each policy and insurance company contract spells out how the cash value is accrued over time, but it’s never more than a fraction of the death benefit amount.
To make matters worse, the actual cash surrender value may be subject to market volatility and fluctuations as defined in the contract. It may be subject to various fees, charges and even “surrender penalties.” [3] All of these can substantially reduce the surrender value, sometimes even to zero.
- Cancel the policy. If you carry term life insurance, all you need do is stop paying the premiums. If your policy has cash value, you’ll need to notify your insurance company that you wish to cancel the policy. They’ll work with you to calculate the surrender value, make that payment, if any, and close out the policy.
The New Florida Life Insurance Law and Life Settlement Regulation
ThinkAdvisor reports that $57 billion of face amount life insurance owned by a quarter-million people age 65 or older lapses every year as discussed above. [4] That’s about the same amount of money as the World Bank has allocated to help developing countries fight poverty in 2017. [5]
The new Florida Law, known as Prohibited Insurance Acts targets several insurance industry practices that are not in the best interest of consumers.
- It now requires insurance companies and their agents to explain life settlement and viatical settlement as an option for closing out a life insurance policy. The insurance industry in Florida can no longer withhold or suppress that information to keep consumers in the dark.
- The Act also requires insurance companies to establish anti-fraud units aimed, in part, to eliminate past practices that hurt consumers.
The Act ties into legislation in other states that brings life and viatical settlement into the light. Further, a new Department of Labor Federal law supports policyholders even further. It requires that life insurance and other financial agents act as fiduciaries. A fiduciary is a person entrusted with another’s assets. Fiduciaries are held to strict legal obligations to act in the best interest of the customer…or to face censure, fines and even time in jail. With laws at both state and Federal levels favoring policyholders, the times have certainly changed.
Good News for Life Insurance Policy Owners in Florida
With Florida Governor Scott’s signing, the Prohibited Insurance Acts now forces life insurance companies in Florida to disclose options beyond simply lapsing, surrendering or canceling life policies. This life settlement regulation is a win for consumers throughout the state.
As you know, life settlement [6] and viatical sales [7] allow an investor to buy your life policy, take over the premium payments, then receive the death benefit when you die. The amount you receive from the investor will usually be substantially more than the surrender value. And yes, even convertible term insurance can be sold in a life settlement or viatical.
Learn About Your Options Before Making Decisions With Your Life Insurance Policy
Perhaps you are considering closing out a life policy…if your policy has become too expensive…if your health is slipping and you need a cash infusion to pay medical bills. You are not alone. Reverse Life Insurance can assist with a free no-obligation life insurance policy appraisal.
We talk with people every day who are trying to understand their options for selling their life insurance policy. We are not brokers looking to profit buy your policy. Instead, we connect you with a licensed Buyer who you talk with directly. Our goal is to get you the largest possible cash settlement possible. That’s our mission and we’re here to help. Learn more about us here. [8]
Give ReverseLifeInsurance.com a call. We’ll help you understand your options and discover the best solutions for your situation.