NY regulator proposes rules for life settlements

NEW YORK, March 23 (Reuters) - New York insurance regulator Eric Dinallo said on Monday he has proposed legislation to create oversight for an obscure but growing niche market that allows life insurance policyholders to sell active policies to investor groups.

The sales typically allow the policyholder to reap a payment that is more than the surrender value of the policy but less than the death benefits.

Waco, Texas-based Life Partners Holdings Inc (LPHI.O) is a life settlements company and others such as New York-based National Financial Partners (NFP.N) also offer this service.

The insurance department proposed life settlement regulation in a bill introduced to the New York state legislature, according to a statement. Life settlements are currently not regulated in New York.

"Life settlements can be ripe for abuse," said Dinallo, in the statement. "In these times of economic uncertainty, there is strong pressure on people pressed for cash to sell valuable assets, such as life insurance policies. This bill protects consumers by establishing a transparent marketplace with specific licensing, registration and disclosure requirements," he added.

A life settlement typically occurs when an older individual decides he or she no longer needs or wants a life insurance policy. By selling the policy, the policyowner can receive a monetary value greater than is possible by surrendering it to the life insurance company. (Reporting by Lilla Zuill; Editing by Tim Dobbyn)