Be on the lookout for “Life Settlement” products and discuss the potential sale with a lawyer before proceeding.
A life settlement is a life insurance product otherwise known as a viatical. In the typical case, an investment company purchases life insurance policies from insureds with a limited life expectancy at a discount. The investment company then sells fractional interests to clients with the expectation of bringing in a much higher ROI than the slightly better than flat-line rates offered by banks.
In theory, the product sounds great as it allows the insured to obtain the use of capital and provides a good investment opportunity for customers. The rub is in the treatment of life settlements under Texas law which is unsettled and fraught with high risk.
Unfortunately, rogue investment companies have defrauded the public by selling bogus life settlements to unsuspecting customers. Tragically, life insurance agents unaware of the defective nature of the product have sold these policies to customers who lost their investment. Litigation, of course, resulted. Given that the bogus investment company is typically banned in Texas, offshore, or the principals in jail, the unsuspecting and honest insurance agent is the last person standing and easy target. In a NY Minute (where many of these life settlements originate), a Texas life insurance agent can find him/herself in a heap of trouble and potential liability in the hundreds of thousands. Plaintiffs’ lawyers will file suit against the insurance agent alleging claims based on fraud, violation of securities laws, and other theories.
Bottom Line: Get legal advice from a lawyer experienced in Life Settlements before moving forward. What seems like a dream product can easily become your worst nightmare.