Life settlements industry blasts MassMutual-sponsored study

Jun 13, 2005 @ 12:01 am

By Gary S. Mogel

NEW YORK - A recently released study that is highly critical of the life settlements industry is flawed because of its limited data and the vested interest of the insurer that paid for it, according to executives in the life settlements industry.

The bulk of the funding for the study, "The Life Settlements Market - An Actuarial Perspective on Consumer Economic Value," came from Massachusetts Mutual Life Insurance Co. in Springfield and was conducted by New York-based Deloitte Consulting LLP. The study looked at New York settlements entered into between 2000 and 2003.

"There has not been any credible rebuttal by the life settlements industry," said John Skar, MassMutual's senior vice president and chief actuary. "They haven't come back with any data that contradicts what's in the study."

Mr. Skar said that the study was partly intended to be a response to a recent increase in marketing materials sent to MassMutual agents by life settlements companies.

"The study included settlements only in New York, which has a limited number of providers because it is one of about 23 states that regulates this business," said Stewart Shannon, managing partner of Money For Life, a life settlements brokerage firm in Bethesda, Md.

Alleged flaws

The study never mentions how many policies were analyzed, said Scott Page, president of The Lifeline Program, a life settlements firm in Tucker, Ga. Lifeline recently developed an advertising campaign and video, featuring television star Betty White, designed to educate the public on the benefits of life settlements.

The study looked at policies, sold over four years, with just $225 million in face value - a tiny fraction of the estimated $24 billion sold annually, Mr. Page said. He speculated that the data could have come from just one company that chose to participate, as the data studied isn't required to be reported under New York law.

Mr. Skar said he doesn't know the number of policies that were analyzed but that whatever public information was available was used. He added that he isn't fazed by having Ms. White on the other side of the controversy.

MassMutual indicated in a statement accompanying the study's release that the results statistically were significant enough to show that, on average, the economic value of policies sold in New York during that period was 64% of the face amount. Life settlements companies paid out 20% of the policies' face amount, meaning that 44% was lost due to the transaction costs - including expenses, taxes and profits - involved in the sales, the study noted.

Impartiality questioned

Some life insurers have a vested interest in discouraging life settlements, because they would rather have the policy lapse and owe the policyholder only the cash surrender or account value rather than pay the much larger death benefit, Mr. Shannon said.

"The insurance industry wants policyholders to keep paying premiums even if they go broke in the process," Mr. Page said. "Consumers are well served by financial advisers who advocate life settlements."

"The life settlements people can't have it both ways; they can't say we'd rather have the policy lapse and that we also want people to continue paying premiums," Mr. Skar said. "We advocate that policies be retained."

The study also concluded that policyholders with impaired health can maximize their estate value if other assets are liquidated and the life insurance policy is maintained until death.

It often makes more sense to keep a policy until maturity; no one will argue that point, Mr. Shannon said. "But advisers who ignore life settlements can be sued by clients for violating their fiduciary responsibility to know about and present all available options," he added.

"We don't want our agents giving bad financial advice," Mr. Skar said. "If a policy is a bad deal, then why would a sophisticated investor want to buy it?"


What do you think?

View comments

Recommended for you

Upcoming Event

Sep 10


Denver Women Adviser Summit

The InvestmentNews Women Adviser Summit, a one-day workshop now held in six cities due to popular demand, is uniquely designed for the sophisticated female adviser who wants to take her personal and professional self to the next level.... Learn more

Featured video


Why advisers are pessimistic about the economy

Deputy editor Bob Hordt and senior research analyst Matt Sirinides discuss a recent InvestmentNews survey of advisers, most of whom see a recession ahead before the next presidential election.

Recommended Video

Keys to a successful deal

Latest news & opinion

Blackrock exposed data on 12,000 financial advisers

The data appeared in three spreadsheets, linked on one of the New York-based company's web pages dedicated to its iShares exchange-traded funds

Advisers throw cold water on FIRE movement

Millennials love it, advisers don't: Turns out, extreme early retirement is a suitable goal for almost nobody.

10 universities with the most billionaire alumni

These 10 American schools have the greatest number of alumni who are billionaires.

Top-performing ETFs of 2018

The markets took a beating last year, but these exchange-traded funds bucked the trend

Morningstar says investors rushed the exits in 2018

Net flows into mutual funds and ETFs were the lowest since the 2008 financial crisis, while money-market funds captured inflows.


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting It'll help us continue to serve you.

Yes, show me how to whitelist

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print