A New York regulator Eric Dinallo stated this week that he planned to propose a legislation to create oversight for an ambiguous but growing niche market that allows life insurance customers to sell active policies to investor groups.

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

The company department proposed life settlement regulation in a bill introduced to the New York state legislature. Life settlements are presently not regulated in New York.

A life settlement typically occurs when an older policyholder decides he or she no longer needs or wants life insurance cover. By selling the policy, the individual can receive a monetary value greater than is possible by surrendering it to the life insurance company.

Dinallo pointed out how the life insurance system can be abused, especially when a recession hits: “Life settlements can be ripe for abuse. In these times of economic uncertainty, there is strong pressure on people pressed for cash to sell valuable assets, such as life insurance policies.”

Therefore, he said the bill will be a step forward in the insurance sector: “This bill protects consumers by establishing a transparent marketplace with specific licensing, registration and disclosure requirements.”