Interesting piece, The Obama administration wants to impose new life settlement reporting rules and tighten the rules governing life settlement tax calculations.

Current Law
The seller of a life insurance contract generally must report as taxable income the difference between the amount received from the buyer and the adjusted basis in the contract, unless the buyer is a viatical settlement provider and the insured person is terminally or chronically ill.

Under a transfer-for-value rule, the buyer of a previously-issued life insurance contract who subsequently receives a death benefit generally is subject to tax on the difference between the death benefit received and the sum of the amount paid for the contract and premiums subsequently paid by the buyer. This rule does not apply if the buyer’s basis is determined in whole or in part by reference to the seller’s basis, nor does the rule apply if the buyer is the insured, a partner of the insured, a partnership in which the insured is a partner, or a corporation in which the insured is a shareholder or officer.

Persons engaged in a trade or business that make payments of premiums, compensations, remunerations, other fixed or determinable gains, profits and income, or certain other types of payments in the course of that trade or business to another person generally are required to report such payments of $600 or more to the IRS. However, reporting may not be required in some circumstances involving the purchase of a life insurance contract.

Reasons for Change
Recent years have seen a significant increase in the number and size of life settlement transactions, wherein individuals sell previously-issued life insurance contracts to investors. Compliance is sometimes hampered by a lack of information reporting. In addition, the current law exceptions to the transfer-for-value rule may give investors the ability to structure a transaction to avoid paying tax on the profit when the insured person dies.

Proposal
The proposal would require a person or entity who purchases an interest in an existing life insurance contract with a death benefit equal to or exceeding $500,000 to report the purchase price, the buyer’s and seller’s taxpayer identification numbers (TINs), and the issuer and policy number to the IRS, to the insurance company that issued the policy, and to the seller.

The proposal also would modify the transfer-for-value rule to ensure that exceptions to that rule would not apply to buyers of policies. Upon the payment of any policy benefits to the buyer, the insurance company would be required to report the gross benefit payment, the buyer’s TIN, and the insurance company’s estimate of the buyer’s basis to the IRS and to the payee.

The proposal would apply to sales or assignment of interests in life insurance policies and payments of death benefits for taxable years beginning after December 31, 2010.

Find complete info on page 69 on the report:
www.treas.gov/offices/tax-policy/library/greenbk10.pdf

More info coming to:
Life Settlement Tax

A report from Boston-based Aite Group LLC sees moderate growth potential for the life settlements industry in face of a constrained capital environment and decreased taste for innovative financial products brought on by the credit crisis.

Authored by Aite Group Senior Analyst Clark Troy, the 58-page report says the industry is in need of technical innovation, with difficulties in estimating the life expectancies of the insured also causing uncertainties. Nonetheless, Aite Group estimates that the life settlements industry will recover from a sub par 2009 to transact approximately US$13 billion annually from 2010 to 2013.

“As a non-standardized institutional financial services market, the life settlements industry supports a rapidly changing ecosystem of technology vendors and service providers,” Troy says. “Best practices and delivery paradigms for service providers have not solidified. Service providers are competing vigorously to establish pre-eminence, and position themselves for various industry growth scenarios.”

Source: InsuranceNetworking.com

Maine Life Settlement Law

After news the last couple weeks ago about Maine regulation, it looks like some clarification was needed.

A bill has been proposed in Maine that would clarify a state law requiring life insurance companies to notify policy holders of their option to sell their policy rather than let it lapse.

The new bill, LD 1523,  seeks to amend PL 2009, c. 376, which was signed into law in June by Gov. John Baldacci. That law requires life insurers to inform individuals that there are alternatives, including life settlements, to surrendering their policy or allowing it to lapse.

The new legislation would clarify that c. 376 applies to policies with death benefits of at least $100,000, where the policy owner is at least 60 years old or is terminally or chronically ill.

The bill, sponsored by Representative Charles Priest (D.), has been referred to the state House Committee on Insurance and Financial Services.

We were working on a project for a client, and they are changing their strategy. So the domain name they were gonna use is now up for sale. This is a great name with a lot of potential.

LifeSettlementGroup.com

It is a .com, and could work for any broker, provider, investment group, or financial advisor firm. Could add a lot of credibility to your current or future business plans.

Email offers to grant@dreamteamfinancial.com. We would like to sell this domain soon.

Interesting news…. Here are some tidbits, I wonder if other large firms might take a step back.

Goldman Sachs (GS.N) is quietly backing away from life settlements— the business of buying life insurance policies from aging Americans in the hopes of collecting on the death benefit.

The Wall Street investment bank is ending its involvement with a “mortality index” it launched in December 2007 with high expectations. A Goldman spokesman confirmed the decision.

Goldman’s QXX index tracks the life expectancy of a group of people aged 65 and older who have sold their life insurance policies to an investment pool that’s managed by another firm, AVS Underwriting LLC.

But the market for Goldman’s index-based life settlement derivatives appears to be a casualty of the worst financial crisis since the Great Depression, said executives with several life settlements firms, who didn’t want to be identified.

The market for bonds backed by life settlements — so-called “death bonds” — has been even slower to pick up.

In September, the House Financial Services Committee held a hearing on Wall Street’s involvement in the life settlement market and asked Goldman Chief Executive Lloyd Blankfein or one of his “designees” to testify. The firm sent Steven Strongin, a managing director, to testify. He told the panel that life settlements represented a “very small percentage of our overall business.”

Strongin also testified the company had never been involved in a life settlement securitization and had “no plans to execute one.”

Source: Rueters

Read full article:
www.reuters.com/article/idUSN1823436220091218