[Part 2] How to Overcome 20 Life Settlement hurdles
Part 2 is focused on personal issues involving the Insured and/or the Policy Owner that are common hurdles that must be overcome when getting a life settlement. Of these, the most important is the health of the Insured. Other topics include legal proceedings such as bankruptcy, divorce, and incompetence.
3 difficulties with carriers (life insurance companies) are discussed in Part 3.
For a discussion of 12 issues involving the life insurance policy itself, please see Part 1.
#Issue 13: The Insured’s health has not changed since policy issuance
The most important personal Life Settlement question is: Would the Insured probably get the same health rating on a new life insurance policy? Life Settlement Providers typically prefer cases where the Insured’s rating would be worse or even uninsurable.
Health that is essentially the same as when the policy was issued makes a Life Settlement far more difficult, though Convertible Term policies sometimes make the difference.
#Issue 14: Is Power of Attorney needed for the Insured or Owner if other than Insured?
When an Insured/Owner, or Owner if other than Insured, becomes legally incompetent, the person with an appropriate Power of Attorney must communicate on the impaired person’s behalf and sign all documents. The Durable Power of Attorney is universally recognized, and certain states also allow some form of Conservatorship to be used. The crucial issue here is whether the legal power was granted prior to the Life Settlement Application. If so, the designated individual replaces the one who is not functional.
Having the right legal Power in place can also address the Life Settlement Provider ’s requirement for the Insured’s PCL (Physician’s Competency Letter) at the time of contract signing, whether the Insured is also Owner or not. The PCL is a powerful statement by an attending physician that the Insured is “of sound mind and able to handle financial and other matters” or words to that effect.
It is far better for competent people to tackle this difficult area of Estate Planning with an attorney ahead of possible need. If the Power of Attorney or Conservatorship document has not been created before the Life Settlement case has been submitted, the impaired Insured/Owner or Owner, if other than the Insured, may have to be inserted into the Civil Court System for a legal ruling regarding competency. This is time-consuming, costly, and public.
#Issue 15: Policy Owner’s pending bankruptcy has not been discharged
Life Settlement Providers insist on receiving a copy of every Bankruptcy Discharge involving the Policy Owner. If a Bankruptcy is currently pending and has not been Discharged, Providers will not issue firm quotes. Their caution is based on the early experiences in Life and Viatical Settlements during the AIDS pandemic of the 1980s and 1990s. In a number of instances, the Policy Owner’s Life Settlement money was intercepted by a Bankruptcy Trustee. The distress of the Policy Owners became a publicity nightmare. Today’s Policy Owner with an undischarged Bankruptcy should engage his attorney’s opinion before submitting the Life Settlement case, especially if the Owner might also be involved in a pending or contemplated divorce. The Life Settlement Broker’s experience with such matters can add to the Owner’s decision process when or if to proceed with an Application for a Life Settlement.
#Issue 16: Owner’s pending lawsuits or legal action
These broad questions are part of every Life Settlement Application. Anything of a serious nature should be noted and Life Settlement Providers will each decide if more information is needed.
If the Policy Owner’s Divorce Settlement has not been executed, some caution is in order. Some Divorce Settlements require that part of the death benefits is formally Assigned in the policy and that the policy must be kept in force. Life Settlement Providers will not make firm quotes until the Divorce Settlement is complete and a copy made available for review. As mentioned in Part 1, #5, all Assignments must be released before firm Life Settlement quotes will be made by Life Settlement Providers.
#Issue 17: The Policy Owner is having problems paying premiums on a timely basis
Many Policy Owners with financial challenges find it hard to pay life insurance policy premiums when due. This means the policy might fall into Grace Period as discussed in Part One, number 2. There would be no firm Life Settlement quotes until the overdue policy has been paid to date. The worst outcome would be for the policy to lapse. Lapsation may make a Life Settlement much more difficult or even impossible as detailed in Part 1, #3.
This section began with an emphasis on the Insured’s health since the policy was issued and why unchanged health can make a Life Settlement difficult. Legal proceedings must be satisfactorily concluded before a Life Settlement can go forward.
In Part 3, we cover difficulties with life insurance carriers.