Section Two: Viatical and Life Settlements; Classes of Life Policies

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.

Chronically Ill

1. Being unable to perform at least two Activities of Daily Living (ADL)--eating, toileting, 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.

Group Life Insurance Advantages

1. Exposure to claim payment is lowered per individual because the risk is spread over the group, usually resulting in a cost savings to the group because of this reduced adverse selection-everyone is insured. 2. Underwriters look more closely at specific health history of an insured. 3. Insurer cannot discriminate against an individual in the group who has poor health. People who might be declined individually may be included in a group policy as a condition of employment/membership in the group.

Viator

1. The owner of a life insurance policy or a certificate holder under a group policy who enters or seeks to enter a viatical settlement contract. 2. A person with a castrophic 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.

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 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 viator'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.

Separate Account

An account held by an INSURANCE company for the investments made through variable contracts. Cannot be co-mingled with general accounts.

Fixed Life Insurance Policy

An insurance policy that has a set, guaranteed interest rate, with the fixed product always increasing at a pre-determined rate. Less risk on cash value.

Variable Life Insurance Policy

An insurance policy with an interest rate that changes along with a set of mutual funds or other stock market indicator. When the stock market does well, the cash value of the variable product increases and visa versa. More risk on cash value.

General Account

Money invested in a fixed policy goes into this type of account of the company, and consequently the safety of such an investment may be affected by the stability and strength of the company.

Ordinary Life Insurance Policies

Normally have face value amounts of more than $!,000 and have a variety of structures and benefits.

Permanent Life Insurance

Offers a death benefit and the accumulation of cash value. Examples: Whole, Universal, and Variable life policies 1. Permanent insurance protection 2. More expensive to own 3. Builds cash value 4. Loans are permitted against the policy 5. Favorable tax treatment of policy earnings 6. Level premiums

Term Life Insurance

Offers coverage for a specific and predetermined period of time, and its only benefit is a death benefit. 1. Temporary insurance protection 2. Low cost 3. No cash value 4. Usually renewable 5. Conversion (depending on the policy) to permanent life insurance

Records

Records must be kept for 5 years.

Participating vs Nonparticipating (par/nonpar)

A mutual insurer may issue polices on both a PARTICIPATING (sharing in the profits of the company) and NONPARTICIPATING basis, provided that the right or absence of participation is related to the premium charged. The policy must clearly state whether it is participating or nonparticipating.

Viatical Settlement Broker

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

Viatical Settlement Provider

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

Fraudulent Viatical Settlement Act

Because of widespread fraud in some segments of the viatical settlement industry, many states have developed Fraudulent Viatical Settlement Acts to detail the legal conduct of these types of policy contracts. Some provisions of the various Acts include: 1. Requiring and defining the licensing and conduct of viatical settlement brokers 2. Requiring disclosure of: a. facts regarding viatical settlements, including the financial consequences of selling a life insurance policy in a viatical settlement b. 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.

Terminally Ill

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

Fraudulent Acts & Prohibited Practices

It is prohibited to enter into a viactical settlement within two years of the insurance policy's unless: 1. The policy was issued as the result of the viator'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 the terms of a buyout agreement in effect at the time of the original life policy was issued.

Adverse Selection

Over time, health risks in the group change as people are added to or subtracted from the group and can lead to an uneven balance between older and unhealthy people compared to the number of younger and healthy individuals.

State securities and regulated industries bureaus

Primary focus is on cases involving securities fraud and sale of illegitimate products including boiler room sales activity.

"His Debit"

The territory of a Home Service Agent

Group Credit Life

Usually lists the creditor as the beneficiary in order to pay off the debt.

Viatical Loan Contract

A written agreement through which a life insurance policyholder or a person covered under a group policy who has a castastrophic, 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 interest. Upon 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.

Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA)

It is the primary mission of the SEC to protect investors and maintain the integrity of the securities markets. These joined in 2007 to form FINRA. Producers must have both a Life Insurance producers license as well as a FINRA securities license to sell any variable products.

Individual Credit Life

Lists the individual as beneficiary who will be responsible for paying off the debt when the insured dies.

Industrial (Home Service)

Simple policies with: 1. Benefits of $1,000 or less (but may be more) 2. Premiums that are collected at the insured's home on a weekly or monthly basis.

Individual Policies

Single policies written on or for a particular individual who receives a copy of the policy. Can be many types.

Examinations

The department may examine or investigate any person or business that is necessary or material to the examination of a licensee. Any cost incurred during an exam of a provider or broker will be charged to the provider or broker.

Group Policies

Written on a group of people under a single master policy usually issued to their employer or another trustee. Individuals are given CERTIFICATES of coverage rather than copies of the policy. 1. The master policyholder or sponsor assists in the plan's administration. 2. Coverage is generally term life insurance but can be permanent insurance. 3. If the employer is the master policyholder and pays the premiums, the costs on policies with a face amount of up to $50,000 are income-tax deductible for the employer.

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.