Massachusetts Governor Deval Patrick is now deciding on his approval for regulations in the industry.
Deval Patrick, the Governor of Massachusetts, is currently considering a bill that has been created in order to help to combat life insurance fraud by adding regulations to brokers and financial service companies that purchase policies from cash starved policyholders and then receive the benefits upon the death of those individuals.
The sale of an individual’s policy for a fraction of its settlement total is both legal and common in Massachusetts.
This is the case in a number of states across the country. In fact, selling life insurance policies is legal, though regulated, within 42 states. Those in support of adding regulation to the practice within Massachusetts have said that without some overseeing, some consumers are at risk of financial schemes. They caution that the policyholders may not be completely aware of the tax or financial ramifications. Furthermore, they may not know that this could potentially cause their insurability to run out, so that they would not be able to obtain this type of coverage in the future.
The life insurance bill would help to control the way that coverage could be turned over to other parties.
The new life insurance bill would create regulations in Massachusetts regarding settlement policies (H 4296). It has already cleared the Legislature, as of the close of the 2011-2012 session. Now, it sits before Governor Patrick, who has until the end of today to give his approval, if he wishes to do so.
According to House Majority Leader Ronald Mariano (D-Quincy), the bill specifically bans “stranger-originated” life insurance policies. It also provide protection for consumers who contract for settlements on their policies. In order to stop stranger-originated policies from occurring, the regulations outlined within the bill would require policyholders to own their policies for a minimum of two years before they will be legally allowed to sell.
A stranger-originated policy occurs when an investor provides a consumer with a loan in order to make life insurance premiums payments. Then, after a contestability period of two years, the investor takes over the policy’s ownership. At the time of the creation of the policy, the investor has no insurance interest in the policyholder’s life. Should this legislation pass, this would, therefore, violate the state’s insurable interest laws.