Section 2.5 - Viatical and Life Settlements

Viatical Settlement Broker Authority & Licensing

Life and annuity agents must obtain a license before selling viatical agreements by submitting the proper application and paying the appropriate fee.

Viaticated Policy

A life insurance policy or certificate that has been the subject of a completed viatical settlement contract or viatical loan contract.

Viatical Settlement Provider

A person, other than a viator, that enters into or effectuated a viatical settlement contract.

Viatical Settlement Purchaser

1. A person who gives money as consideration for. A life insurance policy or an interest in the death benefits of a life insurance policy. 2. A person who owns, acquires or is entitled to a beneficial interest in a trust that owns a viatical settlement contract or is the beneficiary of a life insurance policy that has been or will be the subject of a viatical settlement contract, for the purpose of deriving an economic benefit.

Viatical Settlement Broker

A person that, on behalf of another and for a fee, commission or other valuable consideration introduces viator to viatical settlement providers, or offers or attempts to negotiate viatical settlement contracts between a viator and one or more viatical settlement providers.

Fraudulent Acts & Prohibited Practices

It is prohibited to enter into a viatical settlement within two years of the insurance policy's issue unless: 1. The policy was issued as the result of the Victor's conversion from a group policy so that coverage has been in effect for 24 months or more. 2. The insured has become terminally ill or disposes of ownership interests in a closely held corporation subject to terms of a buyout agreement in effect at the time of the original life policy was issued.

Viatical Settlement Contract

A written agreement entered into between a viatical settlement provider and a viator. The agreement must establish the terms under which the viatical settlement provider will pay compensation or anything of value, which compensation or value is less than the expected death benefit of the insurance policy or certificate, in return for the Victor's assignment, transfer, sale, devise or bequest of the death benefit or ownership of all or a portion of the insurance policy or certificate of insurance to the viatical settlement provider.

Examinations, Record Retention, Investigations

1. The department may examine or investigate any person or business that is necessary or material to the examination of a licensee. 2. Records must be kept for five years. 3. Any costs incurred during an exam of a provider or broker will be charged to the provider/broker.

Viator

1. The owner of a life insurance policy or a certificate holder under a group policy who enters or seeks to enter into a viatiacl settlement contract. 2. A person with a catastrophic or life threatening illness who has a life insurance policy and sells or intends to sell it in a viatical settlement; one who owns and assigns a life insurance policy in a viatical settlement.

Fraudulent Viatical Settlement Act

Because of widespread fraud in some segments of the viatical settlement industry, many states have developed legislation to detail the legal induct of these types of policy contracts. Some provisions include: 1. Requiring and defining the licensing and conduct of viatical settlement brokers 2. Requiring disclosure of facts regarding viatical settlements, including the financial consequences of selling a life insurance policy in a viatical settlement and possible alternatives to a viatical settlement 3. Making it unlawful to solicit or sell viatical settlement contracts using untrue facts or by engaging in any type of fraud regarding viatical settlement contracts.

Disclosure to Consumers

A disclosure statement must be given to each viator or insured before the individual is asked to sign any documents and at the time the viatical settlement is signed by all parties. The disclosure statement must be signed and contain the following: 1. Possible alternatives to a viatical settlement... 2. Info that some or all of the proceeds may be subject to state and federal tax 3. Proceeds could be subject to creditors, unlike life insurance death benefits paid to beneficiaries 4. Proceeds may adversely affect eligibility for Medicaid or other government benefits or entitlements. 5. The viator may rescind a contract for 15 calendar days after receipt of the settlement (if the insured dies during this 15 day period, the contract is considered to have been canceled and proceeds must be repaid along with any premiums, loans, and loan interest. 6. Once the settlement provider receives notice that ownership interest has been transferred and a beneficiary designated, funds must be sent to the viator within three business days 7. Entering in a viatical agreement may cause the insured to forfeit some of the life insurance policy provisions. 8. Copy of NAIC's brochure describing the settlement process must be given to the potential viator.

Chronically Ill

Defined as: 1. Being unable to perform at least two activities of daily living, or ADLs (eating, toilet IHG, transferring, bathing, dressing, or continence) 2. Requiring substantial supervision by another person to protect the individual from threats to health and safety due to severe cognitive impairment.

Terminally Ill

Having an illness or sickness that can reasonably be expected to result in death in 24 months or less

General Rules of Viatiacl and Life Settlements

A purchase agreement that is the contract or agreement in which the viatical or life settlement buyer agrees to buy all or part of the life insurance policy on the life of someone with a critiacl or terminal illness. This gives the buyer access to the policy's death benefit Exmaple: Karl was told by his doctor that he is terminally ill and lifely has only one year to live. Karl owns a life isurance policy with a $200k death benefit, but does not have money to pay health insurance bills. Jean steps in and agrees to buy the policy from Karl for $150k and makes herself the beneficiary. Karl gets money to pay his bills and when he dies Jean will receive the policy's $200k death benefit.

Viatical Loan Contract

A written agreement through which a life insurance policyholder or a person covered under a group policy who has a catastrophic, life-threatening or chronic illness or condition secures a loan from a viatical loan provider by using the policy as collateral. The secured loan amount is less than the face value of the policy; the difference between the loan principal and the face value of the policy is used to pay, among other things, the accrued loan interest. Union repayment of the viatical loan, the viatical loan provider's collateral interest in the policy terminates and the security interest is released to the original policyholder, or his or her designee. Viatical loans do not include loans taken against the cash value of a life insurance policy for the purpose of paying premiums due.

Viatical Loan Borrower

The owner of a life insurance policy or the certificate holder under a group life insurance contract insuring the life of a person with a catastrophic, life-threatening or chronic illness or condition who enters into a viatical loan contract with a viatical loan provider.

What Must Be Disclosed

1. Any affiliation between the viatical settlement provider and the issuer of the insurance policy to be viatiated 2. The name, address, and telephone number of the viatical settlement provider. 3. The dollar amount of the current death benefit payable to the viatical settlement provider under the policy or certificate. Also, the availability of any additional guaranteed insurance benefits, the dollar amount of any accidental death and dismemberment benefits under the policy or certificate, and the viatical settlement provider's interest in those benefits 4. The name, business address, and telephone number of the independent third part's escrow agent, and the fact that the viator or owner may inspect or receive copies of the relevant escrow or trust agreements or documents 5. That coverage on the lives of any other joint or additional insured's or family riders could be forfeited. 6. Any change in ownership or beneficiary must be communicated by the provider to the insured within 20 days after the change.