Life Settlements CH 8

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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)


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