The Terminally Ill Life Policy Assignee
Dermot, aged 61, holds a unit-linked whole-of-life policy with a death benefit of €250,000. He has named his adult daughter Aoife as sole beneficiary. Six months ago Dermot was diagnosed with metastatic cancer and given a prognosis of 6-12 months. He needs cash now for home care and has asked his broker to arrange an assignment of the policy to a third-party life settlement firm for €140,000. Dermot's policy has an outstanding loan of €18,000 against it, and the policy document contains a clause requiring the insurer's written consent to any assignment. Aoife is unaware of the plan. Dermot has capacity and is adamant he wants to proceed quickly. The insurer has not yet been approached.
1. Identify the key legal and regulatory issues the broker must resolve before facilitating the assignment, and explain how each affects whether the transaction can proceed.
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Three issues dominate.
1. Consent and contractual mechanics. The policy requires the insurer's written consent to assignment. Without it the assignment may be ineffective against the insurer, so the broker must obtain consent in writing before any money changes hands. The broker should also confirm the settlement firm's standing and that the assignment is executed as a legal (not merely equitable) assignment so the buyer can enforce the claim.
2. Policy loan. The €18,000 loan reduces the net death benefit and must be repaid or netted from the €140,000. The broker should clarify whether the settlement offer is gross or net and ensure the loan is discharged so the assignee receives clean title. Dermot's net proceeds are therefore around €122,000, not €140,000 - a material disclosure point.
3. Beneficiary and conflict. Aoife's expectation is extinguished by the assignment. Dermot has capacity and may dispose of his own property, but the broker should document the advice given, confirm no undue influence, and flag that the settlement proceeds (€140,000) are far below the €250,000 death benefit - Dermot is trading away €110,000 of value for liquidity. The broker must be satisfied this is in Dermot's best interests given his care needs, record the rationale, and disclose all fees. Selling a life policy is a regulated activity; the broker must act within authorisation and treat the customer fairly.
2. Dermot asks whether he could instead simply surrender the policy to the insurer for cash. Compare surrender with the settlement assignment and state what the broker should advise.
Read the worked answer
Surrender returns the policy's surrender value, which for a unit-linked whole-of-life policy with an outstanding loan is typically well below the death benefit and often below a life-settlement offer for an impaired life. The settlement market pays a premium precisely because the buyer expects an early claim.
The broker should:
- Obtain the current surrender value from the insurer and compare net-of-loan figures with the €140,000 settlement offer.
- Note that surrender terminates cover immediately; if Dermot's prognosis is wrong and he lives longer, the family loses the €250,000 entirely.
- Consider alternatives: a partial encashment, an accelerated death benefit if the policy offers one, or retaining the policy and funding care another way.
Recommendation: present both figures in writing, explain the loss of the death benefit and Aoife's position, and let Dermot decide with documented advice. The broker must not steer to the higher-commission route.