A life settlement industry trade group is taking issue with the published comments of a senior vice president for the American Council of Life Insurers regarding the amount paid in life settlements.

The Life Settlement Institute, a non-profit advocacy group, was responding to a statement made by J. Bruce Ferguson, the ACLI’s senior vice president for state relations, in an article published by Bloomberg March 26, where he was quoted as saying there was “probably not a whole lot of difference” between the value that a life insurance policy owner can receive for his or her life insurance policy in a life settlement compared with the cash surrender value that he or she would be entitled to receive upon surrender of the policy to the issuing life insurance carrier.

“This is simply not true,” according to the LSI’s response. It points out that the CSV is an amount specified by formulas in the life insurance contract, which amount is affected by the insurance carrier charges for cost of insurance, interest credit rates, the policy owner premiums paid, outstanding loans and riders such as wavier of premiums for disability, death benefit maturity extension, accelerate death benefits and others.

The CSV typically ranges from $0 to several hundred thousand dollars per policy, depending on the size and age of the policy.

“Prior to evolution of the life insurance secondary market, policy owners had only one option when they wanted to terminate a life insurance policy – either surrender the policy to the life insurance carrier in exchange for the CSV – or let it lapse – that is, discontinue paying premiums on the policy and receive no value for it from the insurance carrier.

Today, seniors can enjoy a highly valuable second option-a life settlement,” according to the LSI statement. “A life settlement is the sale of a life insurance policy to a third party for MORE than its cash surrender value, but less than its net death benefit … by most state laws it has to be more.”

Life settlement providers typically pay a significant multiple of the CSV for policies, according to the LSI. In a recent survey of life insurance policies purchased by LSI members found that, in 2008, the average net amounts (after all commissions, fees and expenses) paid to policy owners for policies purchased ranged from seven to 12 times the CSV.