Life settlements have received a lot of negative attention due to the industry’s high fees and aggressive sales tactics. Now there is another set of potential problems associated with life settlements.A life settlement is a financial transaction in which an older adult sells his or her life insurance policy to an investor at a discount to face value. In the past, people would sell their policies to investors in exchange for a lump sum-payment.There have been a lot of recent concerns over securities that package life settlements and use them to back the sale of notes. The worry of some regulators is that these policies could be overvalued or even falsified.According to The Wall Street Journal, last year, Texas investigators seized approximately $20 million in assets from National Life Settlements LLC of Houston. The company supposedly sold secured notes backed by life-settlement contracts and promised investors up to 10 percent annual interest. The state of Texas considered the investments to be unregistered securities. A court-appointed receiver testified that the company paid new investors with money from earlier ones, instead of investing in life settlements. The principals of National Life Settlements eventually settled the claim without admitting to the charges against them.
