The convergence of several industries on the term "settlement" will likely cause confusion for consumers unless something is done about it by regulators and the affected trade associations. A consumer using the Internet for the term "settlement broker" may come up with a structured settlement broker (placing new structured settlements paid to injury victims, workers compensation claimants or survivors), a factoring company ("cash now" company) masquerading as a structured settlement broker, or a life settlement broker (another type of "cash now" company).**
These are all different markets serving different needs! I have extensively covered factoring in previous posts so let’s take a brief look at life settlements.
A life settlement is the sale of a life insurance policy by a person who has a limited life expectancy. Those that participate in life settlements use the opportunity to extract value (i.e. "cash now") from the person’s existing life insurance policy and reposition those funds for whatever financial needs they may have. Before life settlements became available, the owner of an unneeded or unwanted life insurance policy had two options (1) sell the policy back to the institution that issued it for its cash surrender value (if any) or (2) allow the policy to lapse. So called life settlement brokers submit a potential seller’s life insurance policy throughout a secondary market. The bid is for a discounted amount off the policy’s face value (or death benefit).
It is in the public interest that the manner of any Internet solicitation, whether in web site source code or pay per click sponsored advertising, clearly indicate the type of business of the advertiser, whether that be a structured settlement broker, factoring company or life settlement broker.
The challenge will be that while both the structured settlement industry and life settlement industry are heavily regulated by state insurance departments, the factoring industry essentially is not.
** a number of factoring companies also fund life settlements
Leave a Reply