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Email: edit@calbrokermag.com
We are happy to hear back from you with any comments.

There has been so much focus on one side of life settlements – the “Investor Owned Life Insurance” that we tend to forget how they started; to generate a legitimate market for unneeded life insurance policies. Several states have been working on passage of legislation aimed at restricting the purchase of life insurance with the sole intent to sell to a third party. Only California has included language that considers the other side of the story: encouraging consumers to get the most for their unneeded life insurance policies.
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More DI Controversy
I wanted to clear up some misunderstandings regarding “Secrets of a Disability Claims Buyout” by Art Fries in your March issue, and Larry Schneider’s response in the April issue.

In Question 6 (Medical symptoms), of course the cause of the claim (or as Larry states, the “reason” for the claim), medical symptoms, are important to talk about, but many people involved in a disability buy-out don’t understand that before a buy-out offer is made from the insurance carrier to the claimant, the carrier will want to know about CURRENT symptoms as they may have changed during the process of handling a disability claim and could be significantly worse at the time of the buy-out. That might produce a higher mortality rate used by the insurance carrier in their calculation to further reduce the buy-out offer.

In Question 9 (Definition of disability currently. Any change expected in the future and, if so, the date), I don’t know why Larry finds any “fault” here as I have handled many disability buy-outs and several of them involved a change in the definition of disability. There are many policies insuring the public (both group and individual coverage’s) that modify the definition of disability after 2yrs., 5 yrs., and after Age 65. I believe Larry “protests to much.”

In Question 11 (If COLA is included, what the maximum or minimum percentage is.), unfortunately, Larry is dead wrong on this one. There are many disability insurance contracts (I’ve handled more than 310 claims) where the Cost of Living Adjustment (COLA) has a stated minimum and Larry should know that is the case. Larry conveniently forgets that companies provided not only a maximum COLA percentage but also a minimum COLA percentage.

Just thought I’d add my comments to be sure your readers understand the issues. Feel free to send this email to both Larry and Art.

–Gerry

NAIFA Responds to Claims and Allegations
On behalf of the National Association of Insurance and Financial Advisors (-NAIFA). we are writing to correct the erroneous claims and allegations contained in the article entitled “In Whose Interest? NAIFA and AALU Response to STOLI Threatens Advisors and Industry” which was contained in the April, 2008 issue of California Broker.

Mr. Harris is correct that NAIFA did not directly poll its 60,000-plus membership about what position the association should take on STOLI. However, as with NAIFA’s position on numerous other legislative and regulatory issues, NAIFA’s policy was developed and approved by several layers of NAIFA’s volunteer leadership, starting with NAIFA’s Policy Formation Subcommittee and Government Relations Committee, and then moving through the NAIFA Executive Committee and Board of Trustees. The voting membership of each of the aforementioned bodies consists entirely of licensed insurance producers, who are active members of NAIFA state and local member associations across the country. The NAIFA Board of Trustees, which exercises ultimate authority over NAIFA’s policy on legislative and regulatory issues, is elected by the NAIFA National Council, composed of two active members from each of NAIFA’s over 700 local member associations. Yes, NAIFA’s 60,000-plus members did not vote on our STOLI policy. But the articles’ implication that our policy was crafted by a small cabal working in cahoots to do the bidding of the ACLI is flat out wrong.

Further, as the article’s author is well aware, the state legislatures are a hotbed of anti-STOLI activity this year, with over 25 states actively considering legislation to prohibit or limit STOLI. In each state, NAIFA’s members have demonstrated their support for NAIFA’s policy on -STOLI by responding in force when our state leaders have sought to initiate grassroots activity. If the membership was opposed to the position NAIFA has taken on STOLI, we doubt our grassroots efforts would have been met with such enthusiastic responses.

One more small correction—the article mentions our “rush” to join the ACLI; it should be pointed out that AALU, followed immediately by NAIFA, were the first to become aware of STOLI and its potential dangers, and that it was pro-ducers who brought these concerns to the attention of our colleagues in the insurer community.

The article also makes much to do about how the amendments to the NAIC Viatical Settlements Model Act “severely restrict consumers’ access to life settlements” and adversely affects consumers’ property rights. This is simply wrong and claims of this nature have been a source of continuing frustration for those who are truly seeking to stop STOLI while not impacting legitimate life settlements. The five year settlement moratorium contained in the NAIC model was narrowly drafted and is designed to apply only to STOLI-type transactions. It would not apply to consumers who purchase their policies with personal funds. It would not apply to consumers who want to sell their policies – at any time – due to any one of a variety of changes in life circumstances, such as illness, divorce, retirement, bankruptcy, or the death of the beneficiary. Suggestions that the NAIC model imposes a blanket five-year moratorium on life settlements are false and misleading. We’ll say it again – NAIFA opposes STOLI. We think its bad public policy, and represents a threat to both consumers and the life insurance industry. We do not oppose legitimate life settlements.

We find it interesting that everyone involved in this issue claims to be against STOLI and wants to stop it. If that’s the case, why is it that in every state where the NCOIL model bill has been introduced, groups from the life settlement industry have fought tooth and nail to weaken the model’s definition of STOLI – even though they fully participated in the NCOIL process that led to the definition and “signed off” on the definition at the NCOIL meeting where the model was adopted? And why, in a May 5, 2007 article in The Palm Beach Post which discussed a program in which insurance policies would be purchased on wealthy senior citizens with everyone’s intent being to sell the policies to investors in two years – which is the essence of what STOLI is, in the most general sense – the article referred to Doug Head, Executive Director of LISA, as saying “South Florida is a gold mine for the new insurance investment market because of its large population of wealthy senior citizens who no longer need a life insurance policy or who are willing to have one purchased for them with the intent it will be sold for profit”, and quoted Head as saying “[t]here is huge potential in this”?
Through NAIFA, the agent community joins regulators, legislators and the wider insurance industry in opposing STOLI because it violates the public policy against using life insurance as a vehicle for wagering on human life, because STOLI threatens to undermine the life insurance market for seniors and because STOLI may create undisclosed costs and legal implications for participating seniors. Rather than misstating NAIFA’s position against STOLI, we invite LISA to join us in our good-faith battle against this threat to the insurance industry and the public it serves.
Thank you for your thoughtful consideration.

Sincerely,

–Jeffrey J. Taggart, CLU, ChFC, LUTCF, President, National Association of Insurance and Financial Advisors

–Lee A. Allen–Vice President, Communications and Marketing -National Association of Insurance and -Financial Advisors (NAIFA)
–Direct: 703-770-8112
–FAX: 703-770-8411