Life Settlements- 5% - Chapter 8

Records of the Disclosure must be kept by the Licensed BROKER for...

3 YEARS (after services were performed)

Life settlement

Any financial transaction where owner of a life insurance policy sells to a third party for some form of compensation

The State of NY

Does NOT allow direct or indirect participation in STOLIs

Life Settlement Providers (TOP Ones)

Fund many transactions each year, and hold many confidential policies in portfolio assets. They often have in house compliance departments and are backed by institutional investors

Trust Owned Policies

It is ILLEGAL to use a trust, directly or indirectly, to provide funds for a STOLI transaction in a manner that violates the insurable interest laws of NY State.

Life settlement providers license expires on?

June 30 of odd-numbered Years May be renewed at the discretion of the superintendent, upon review of the renewal application and payment of the renewal fee

Advertising

Must comply with laws, rules, regulations set by Superintendent Must be Truthful, Accurate, and Not be misleading in ANY way

Life settlement Provider

Person who enters, or offers to enter, into a life settlement contract with the owner of the policy. In order to act as a life settlement provider, the person must apply to the superintendent for a provider license and pay the required fees.

Life settlement Broker

Solicits, negotiates, and offers to negotiate a life settlement contract REPRESENT only the POLICYOWNERS and have a fiduciary duty to the owners to act according to their instructions and in their best interest Charge a fee for their services, whether or not ownership of the policy is transferred

If a Firm or Association is applying for a Broker's License:

They must name and authorize natural persons to act individually as life settlement brokers for the firm

Superintendent may refuse to issue a life settlement provider license if not satisfied that any affiliated person does not meet the required standards.

...

Financing Transaction

Takes place when a licensed settlement provider obtains funds form the financing entity

Life Settlement Contract, Application, and any other form that is required by regulations is filed and approved by?

The Superintendent of Insurace

How to Obtain Life Settlement Provider LICENSE

B4 receiving a license, provider must: 1) Fully disclose the identify of all stockholders, partners, officers, or members who have a controlling interest 2) Provide a detailed plan of operation 3) Provide a certificate of good standing from the state of domicile 4) Provide an anti-fraud plan 5) Demonstrate financial accountability in a method prescribed by the superintendent (for ex- through a bond) 6) Provide any other info required by the Superintendent

Life settlement Contract

Establishes the terms of the life settlement compensation for the assignment, transfer, sale, or release of the following: 1) Death Benefit 2) Policy Ownership 3) Any beneficial Interest 4) Interest in a trust or any other entity that owns the policy

Superintendent determines that someone who acted as a life settlement broker without a license, the following civil penalties:

1) $50,000 for life settlement brokers and life settlement intermediaries 2) $100,000 for life settlement Providers

No later than the date the Life Settlement contract is signed...

Brokers and Providers must give the PolicyOwner a SEPARATE DOCUMENT which clearly lists all of the required disclosures...It must then be signed by the owner and life settlement provider

Fingerprinting

Superintendent may require any individual named in the application for a brokers license submit a set of fingerprints. Fingerprints will be sent to Division of criminal Justice for a criminal Background check, as well as FBI for national criminal history record check. Life settlement providers are also required to submit a set of fingerprints. Superintendent must provide written notice to the applicant and allow for a hearing if the application is denied based on fingerprinting results Superintendent must provide applicant with a copy of the applicants criminal history and inform the applicant of their right to take action if any of the info. is incorrect

Compensation

Anything of value: Prizes, Cash, credits, loans, interest on premium or forgiveness of interest, vacations, prizes or gifts

Financing Entity

Any accredited investor who provides funds for the purchase of one or more life settlement contracts and who has an agreement in writing to do so

No person may enter into a life settlement contract within 2 Years (24 Months):

After Issuance of the POLICY

Provisions that are more favorable for the owner always occur for courts/Superintendent

....

Prohibited Practices in Life Settlements

1 Entering into a life settlement contract if the person is aware of an deception 2 Engaging in any transaction while knowing the intent was to avoid disclosure of material info relating to life settlement 3 Engaging in any fraudulent acts in connection with any life settlement 4 Engaging into a premium finance loan arrangement where any consideration is paid other than normal commissions, or fees charged other than normal loan fees 5 Acting as a life settlement broker or intermediary while having an interest in that policy 6 Receiving any compensation for acting as a life settlement broker or intermediary w/out being properly licensed 7 transferring the ownership of a policy that is subject to a premium finance arrangement and not remitting any proceeds or consideration paid (other than normal commissions or loan fees to the original owner) 8 Paying finders fees or any other compensation to any owners physician, attorney, accountant, etc. 9 Paying life settlement brokers fees b4 they have been fully disclosed 10 pay life settlement payments in installments

Insured Disclosures

1 Life settlement broker/provider must disclose to the insured that the insured may be contacted by the provider, broker, or another authorized representative for information regarding the insureds health status or for address verification 2 The provider or borker must also disclose that the contact will be limited to once every 3 MONTHS 3 If Insureds life expectancy is less than one year, no more than ONCE A MONTH

Exceptions to the 2 Year Policy Prohibition:

1 Owner or insured is terminally or chronically ill 2 Owner or insured disposes of ownership interests in a closely held corporation 3 Owners spouse dies 4 Owner divores his or her spouse 5 Owner retires from a full time employment 6 Owner becomes physically or mentally disabled 7 Owner becomes bankrupt or insolvent 8 Any condition that the superintendent determines to be extraordinary circumstance for the owner

WOULD NOT CONSTITUE A LIFE SETTLEMENT:

1) Assignment of a life policy as collateral for a loan (not used for premium pmts) 2) A Policy Loan 3) Surrender of an insurance policy 4) Assignment of a life policy to an individual 5) An agreement to assign a contract that is already a policy that has been acquired by a life settlement provider (An already Settled policy) 6) Agreement between parties closely related to the insured by blood or law 7) Employer-Owned life insurance on key employees 8) 1035 Exchange 9) Other forms of legitimate business insurance 10) Any other form of agreement determined similar to any of the above by the Superintendent

Life Settlement Intermediary Requirements: Once registration is approved: It remains in force for 24 Months, Expiring on June 30th of Odd-Numbered Years. Intermediary may submit an application for renewal 60 days before expiration. Application must contain any changes since the original application, as well as required fees Superintendent may suspend, revoke, or refuse to renew the license if the intermediary has violated any laws of the Insurance Code

1) Must 1st be registered with the Insurance Department 2) Submit an application and required fees 3) List all states where the intermediary is doing or intends to do business 4) Submit a detailed plan of operation 5) Identify the life settlement intermediary executive officers directly responsible for life settlement business, as well as the names of any person with controlling interest 6) Submit a set of fingerprints which will be used for a criminal history record check 7) Comply with any other requirements imposed by the Superintendent

Insured Disclosures Contd

1) Provider/Broker must disclose that the owner has the right to change his or her mind. RESCIND, CANCEL or VOID a life settlement contract WITHIN 15 Days after the receipt of the life settlement proceeds 2) Within 5 DAYS after receipt of the notice of rescission (cancel), the life settlement provider must provider a written statement to the owner: A) The amount of the life settlement proceeds B) The amount of any premiums paid C) The amount of any loans or loan interest paid or to be paid Within 15 DAYS after the owner receives the itemized statement, the owner must repay the above listed items... If the insured dies during the rescission period, the life settlement contract will be deemed to have been rescinded, subject to repayment of the listed items

Privacy

STATE Law will govern...Not to release insureds identify or any information unless it is necessary to conduct transaction/required by law

STOLIs:

Violate the Principle of Insurable Interest Insurers take an aggressive legal stance against policies they suspect are involved in STOLI transactions

Owner Disclosures:

1 Explanation of possible alternatives, including accelerated benefits offered by insurer 2 Some or all proceeds of life settlement contract may be taxable 3 Proceeds of life settlement contract may be subject to the claims of creditors 4 Receipt of the proceeds may adversely affect the recipients eligibility for public assistance 5 Participation in life settlement arrangement may limit the insureds ability to purchase life insurance on their own in the future (limited coverage on one life by insurers) 6 Proceeds will be sent to the owner within 3 business days after the life settlement provider has received acknowledgement that ownership of the policy has been transferred and the beneficiary has been designated according to the terms of the life settlement contract 7 Entering into a life settlement contract may cause other benefits under the policy, such as conversion or waiver of premium, to be forfeited by the owner 8 Total amount paid by the life settlement provider, as well as th net amount to be paid to the owner 9 Date by which the funds will be available 10 The life settlement borker represents exclusively the owner and not the insurer or the provider 11 Provider is required to furnish to the owner a consumer information booklet 12 Provider name, business, and email address and phone #

Info needs to be disclosed regarding Brokers Commissions:

1 Name of each broker, intermediary, producer or consultant that will be compensated by the life settlement provider and the amount of the compensation 2 No life settlement broker may receive a commission if they have acted as a consultant with regard to the transaction during the prior 12 Months and received a fee for such services

Life Settlement Broker NY State Requirements:

1) Be at least 18 Years Old 2) Submit an application to the superintendent on the approved form 3) Be determined, competent, and trustworthy by the Superintendent 4) Complete required prelicensing education 5) Pass the licensing Exam 6) Pay any required fees 7) Submit fingerprints

Lost or Destroyed Life settlement Broker's License

Broker must file a written application for such license, affirming under penalty of perjury that the original license has been lost or desstroyed. A $15 fee is required...Superintendent may issue a replacement license.

If a life producer has maintained an active license for one year:

Prelicensing class and exam, as well as fingerprinting, may be waived when applying for a life settlement broker license. Superintendent may refuse to issue a life settlement brokers license if the aplicant is deemed not trustworthy or has failed to comply with any licensing requirements

Life Expectancy

Refers to a calculation based on the average # of months the insured is projected to live due to medical history and mortality factors

Violating Code in relation to life settlements:

Fines of up to $100,000 for each settled policy. Offending provider may have to file a fraud detection and prevention plan and face other civil penalties $2,000/day for failure to be in compliance

Qualified institutional buyer

Owns and invests at least $100 Million in securities and is allowed by the SEC to trade in unregistered securities. Life settlement provider may sell transfer ownership of a settled policy to these qualified institutional buyers or other investment entity approved by the Superintendent

Life settlement Intermediary

Person who maintains a system to sell or purchase a policy pursuant to a life settlement contract between the owner or broker and the life settlement provider. System is maintained through offers and counteroffers

Stranger- Originated Life Insurance (STOLI)

life insurance arrangement in which a person with no Relationship to the insured (stranger) Purchases a life policy on the insureds life with the intent of selling the policy to an investor and profiting financially when the insured dies. STOLIs are financed and purchased solely with the intent of selling them for life settlements