To: ALL LISA Members
From: Darwin Bayston, President & CEO
Date: April 25th, 2018
Dear LISA Members:
The AARP Education & Outreach division published an article titled “Selling Your Life Insurance? Proceed with Caution” last October that was recently brought to our attention since it keeps being shared on the web. We are very concerned with the piece because it is based on information that is extremely dated at best and factually obsolete at worst. LISA drafted the following response to AARP.
Media Manager/AARP Bulletin
My name is Darwin Bayston and I’m the president and chief executive officer of the Life Insurance Settlement Association (LISA). Our mission is to educate American seniors about options available to them if they own a life insurance policy they no longer need or can afford. Given our similar audiences, we share a commitment to communicating accurate information to seniors and I’m hopeful that we can engage with you on one specific item at this time.
I know it is a challenge to produce timely content on a wide breadth of topics such as those covered in AARP Magazine, The AARP Bulletin and on AARP.org — but I suspect you would want to be made aware if you have published an article that contains dated and/or inaccurate content.
I’m writing in response to an article that one of our association members recently discovered on your website: “Selling Your Life Insurance? Proceed with Caution” (https://www.aarp.org/caregiving/financial-legal/info-2017/insurance-life-settlements.html), with a byline attributing the content to AARP Education & Outreach. It appears this article was published last fall (10/4/17), but I’m very concerned about the piece because it is based on information that is extremely dated at best and factually obsolete at worst. Indeed, it appears that this article was pulled together by someone who simply copied and pasted content from online sources (e.g., the article quotes Doug Head, executive director of LISA, when in fact Mr. Head left the association in 2011).
The life settlements industry has changed substantially in the seven years that have elapsed since the content that your researcher relied upon for this article was published. Life settlements are now regulated in 43 states, the result being a market that offers consumer protection and a credible market where they can sell their policies. We also have far superior technology systems available, which makes the process easier, faster and more transparent for seniors.
Perhaps the most timely update that your readers should have the benefit of contemplating is the effect of the new tax law passed last year. In addition to the more widely publicized aspects of the Tax Cuts of Jobs Act of 2017, the new tax law takes away a major obstacle that had discouraged seniors from selling their life insurance policies for the past decade.
For more than 100 years, Americans have had an established legal right to sell a life insurance policy. The courts have consistently held that a life insurance policy is considered your personal property and — as such — you have the right to sell that policy just like any asset that you own, such as a house, a stock or a mutual fund. This is an important option for seniors to know they have available to them in the event that they own a life insurance policy they no longer need or can afford. Rather than simply lapsing or surrendering that policy back to the insurance company, you can sell it to a third party for immediate cash (on average, for perhaps seven times more than its cash surrender value) in a life settlement transaction.
In a life settlement, a policy owner receives a cash payment, while the purchaser of the policy assumes all future premium payments and receives the death benefit upon the death of the insured. Candidates for life settlements are typically aged 70 years or older, with a life insurance policy that has a death benefit or at least $100,000. This is a great option for seniors, especially those who are struggling with unexpected health care bills or a shortfall in retirement income needs.
However, for the past several years, many seniors have been hesitant to sell their life insurance policies because of a confusing revenue ruling in 2009 from the IRS. This rule required policy holders to deduct the “Cost of Insurance” charges from their policy in order to determine an accurate tax basis. Unfortunately, since it’s very difficult to obtain that precise data, many seniors simply concluded it was too much of a hassle — and the tax consequences would be too great — to go forward with selling their policy. Instead, they simply surrendered their policies and walked away from an asset of potentially greater value to them.
After several years of efforts from our association and other concerned parties who sought to fix this outdated revenue ruling with permanent legislation, the new tax law includes just such a solution. The law reverses the effects of that 2009 IRS revenue ruling and eliminates the need for taxpayers to obtain Cost of Insurance charges on their policies if they have opted for a life settlement. This common sense reform takes away an obstacle that stood in the way of many seniors who wished to sell their life insurance policies.
“The new Tax Cuts and Jobs Act could lead to a new wave of life insurance policy sales, by simplifying the tax calculation rules for policy sellers,” writes Allison Bell, insurance editor for ThinkAdvisor.
Would you consider removing the article published last fall on AARP.org and allow us to assist you in replacing it with an article that is based on the current realities of the life settlement marketplace for seniors? Alternatively, might we work with your online content team to at least modify that article so that it no longer includes information that is now obsolete and/or misleading to your readers?
Thank you very much for taking the time and consider these observations. I look forward to your feedback and would be happy to schedule a time for either a phone call or an in-person meeting at your convenience.
Darwin M. Bayston, CFA
President and Chief Executive Officer
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