Life Settlements CH 8
Prohibited Practices (page 128)
- acting as a life settlement broker or intermediary while having an interest in that policy - receiving any compensation without being properly licensed - paying life settlement payments in installments (must be lump-sum)
the following would NOT constitute a Life Settlement:
- assignment of a life policy as collateral (temp. transfer) for a loan - a policy loan - surrender of an insurance policy - a 1035 exchange (same owner) - assignment of a life policy to an individual - an agreement between parties closely related to the insured by blood or law (cannot have insurable interest) - employer-owned life insurance on key employees
Definitions Parties to a Life Settlement - page 130
1. Owner: seeks to enter into a life settlement contract 2. Life Settlement Broker: solicits or negotiates life settlement contracts for compensation (fiduciary) 3. Life Settlement Provider: enters into a life settlement contract with the owner
A life settlement would require
ABSOLUTE ASSIGNMENT (perm. transfer) of all rights to the policy from the original policy owner to the new policy owner
Business of Life Settlement:
ANY activity relating to the solicitation and sale of an insurance policy to a third party who has no insurable interest in the insured
HIPAA
Health Insurance Portability and Accountability Act: protects individual's health information and sets standards for privacy and security of that info.
Life Settlement Broker
REPRESENT THE POLICYOWNERS -must be at least 18 years old AND submit fingerprints -receive approval from the State
Stranger-Originated Life Insurance
STOLI life insurance agreement in which a person with no relationship to the insured ("a stranger") purchases a life policy on the insured's life with the intent of selling the policy to an investor and profiting financially when the insured dies *financed and purchased solely with the intent of selling them for life settlements
Life settlement transactions
USUALLY offered to senior citizens who may have a life threatening illness and a short life expectancy
3rd party =
a stranger with no insurable interest
Financing Entity
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
the State of New York does not ...
allow direct or indirect participation in STOLIs
Rescission
an action that takes back, cancels, or nullifies = owner VOID
Accredited Investor
an investor whose net worth is in excess of $1 million, or a corporation with assets in excess of $5 million (Financing Entity)
Finder's Fee
commission paid to someone who connects a buyer and a seller (an intermediary's fee) "go-between" "middleman"
Life Settlement Contract
establishes the terms under which the life settlement provider will pay compensation to the policy owner, in return for the assignment , transfer, sale, or release of any portion of the following: - the DB - policy ownership
Life Settlements:
financial transactions that allow the policy owner to sell a life insurance policy to a third party for some form of compensation, usually cash (licensed by State) Separate contract required (approved by State)
Broker License Requirements
if a Life Producer (Agent) has maintained an active license for 1 year, the prelicensing education and examination, as well as fingerprinting requirement, may be waived when applying for a life settlement broker license
Disclosure
information revealed so someone can make an intelligent and educated decision
Life Expectancy
is an important concept in life settlement contracts
Advertising
must be truthful , accurate, and NOT be misleading in any way
Privacy Rule for HIPAA
protected information includes all "individually identifiable health information" - Protected Health Information (PHI)
STOLIs
violate the principle of insurable interest *NOTE: lawful life settlement contracts DO NOT constitute STOLIs
Financing Transaction
when a licensed settlement provider obtains funds from the financing entity (loans funds to provider)