A consumer protection bill to regulate the multi-billion dollar life settlements industry has been signed into law.

Senate Bill 5195, sponsored by Sen. Jean Berkey, D-Everett, regulates life insurance death benefits sales transactions, creates licensing standards for the industry and bans life insurance sales to parties who have no interest in the survival of the insured.

Under the legislation, the Office of the Insurance Commissioner will closely regulate and monitor the industry.

A life settlement contract is a written agreement between a policy owner and a third party that pays the owner ─ while he/she is still alive ─ a lump sum that is less than the death benefit of the insurance, but potentially more than the policy’s cash value. In return, the policy owner agrees to transfer the death benefit to the purchaser.

Elderly consumers are often confused about how the process works; don’t understand the true fair market value of the policies they are selling; and, in some cases, may invite tax problems that could make them ineligible for federal assistance programs such as Medicaid.

The bill requires full disclosure of the benefits and pitfalls of settling a life insurance policy.

Photo: Sen. Berkey, left, at bill signing.