Corporate & Securities Law

The SEC has released a staff report recommending that life settlements be clearly defined as securities so that the investors in these transactions are protected under the federal securities laws.

A life settlement is a transaction in which an individual with a life insurance policy sells that policy to another person, who then assumes responsibility for paying the premiums.  Typically, the seller no longer wants the policy or can no longer afford to pay the premiums.  In exchange, the insured party typically receives a lump sum payment that exceeds the policy's cash surrender value, but is less than the expected payout in the event of death.

The staff report by the SEC's Life Settlements Task Force, which SEC Chairman Mary Schapiro established in August 2009, notes that the market for life settlements has grown over the past decade, raising questions about its regulation and oversight.

In particular, the report notes that there is inconsistent regulation of participants in the life settlements market, including those who arrange for the buying and selling of policies and those who provide estimates of an insured's life expectancy.  In addition, the report notes that investors in individual life settlement transactions or pools of life settlements, would benefit from the application of baseline standards of conduct to market participants.

Source: SEC Press Release 2010-129