Life Settlements

Material information

information that may alter either party's decisions regarding a contract

Stranger-originated life insurance (STOLI)

life insurance arrangement 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. In other words, STOLIs are financed and purchased solely with the intent of selling them for life settlements.

Rescission

an action that takes back, cancels, or nullifies

Accredited investor

an investor whose net worth is in excess of $1 Million, or a corporation with assets in excess of $5 Million

Disclosure

information revealed so someone can make an intelligent and educated decision

Business of Life Settlement

refers to any activity relating to the solicitation and sale of an insurance policy to a third party who has no insurable interest in the insured (i.e. soliciting, negotiating, effectuating, monitoring or tracking life settlement contracts).

Life Settlement Contract

establishes the terms under which the life settlement provider will pay compensation to the policyowner, in return for the assignment, transfer, sale, or release of any portion of any of the following: The death benefit; Policy ownership; Any beneficial interest; or Interest in a trust or any other entity that owns the policy.

owner

refers to the owner of the policy who may seek to enter into a life settlement contract.

Advertising

A licensed life settlement provider, intermediary, or broker may advertise, but must comply with all advertising and marketing laws, rules, and regulations set forth by the Superintendent. Advertisements must be truthful, accurate and not be misleading in any way.

Nonconforming contract

a contract that does not follow state guidelines and provisions

The following would not constitute a Life Settlement:

Assignment of a life policy as collateral for a loan (that will not be used for premium payments); A policy loan; Surrender of an insurance policy; A 1035 exchange; Assignment of a life policy to an individual; An agreement to assign a contract that is already a policy that has been acquired by a life settlement provider (a settled policy); An agreement between parties closely related to the insured by blood or law; Employer-owned life insurance on key employees; Other forms of legitimate business insurance; Any other form of agreement determined similar to any of the above by the Superintendent.

Before a person can act as a life settlement broker in this state, he or she must be properly licensed. The following are the required qualifications for a licensee:

Be at least 18 years old; Submit an application to the Superintendent on the approved form; Be determined competent and trustworthy by the Superintendent; Complete required prelicensing education; Pass the licensing exam; Pay any required fees; and Submit fingerprints.

Privacy

Life settlement brokers, intermediaries, or providers may not share information regarding the insured's identify, or financial or medical information, except as necessary to conduct the business of the transaction, unless permitted or required by law. All parties to the transaction must comply with privacy protections required by federal law. Should the laws of the state provide for greater confidentiality than public health law requires, the regulations of the state will govern.

Finder's fee

a commission paid to someone who connects a buyer and a seller (an intermediary's fee)

Life Expectancy

is an important concept in life settlement contracts. It refers to a calculation based on the average number of months the insured is projected to live due to medical history and mortality factors.

Capital

money or other financial assets to operate a business

life settlement

refers to any financial transaction in which the owner of a life insurance policy sells a life insurance policy to a third party for some form of compensation, usually cash. A life settlement would require an absolute assignment of all rights to the policy from the original policyowner to the new policyowner.

Financing Transaction

takes place when a licensed settlement provider obtains funds from the financing entity. Financing Entity includes 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.

The following are considered prohibited practices in the business of life settlements:

Entering into a life settlement contract if the person is aware of any deception; Engaging in any transaction while knowing the intent was to avoid disclosure of material information relating to life settlements; Engaging in any fraudulent acts in connection with any life settlement; Entering into a premium finance loan arrangement where any consideration is paid other than normal commissions, or fees charged other than normal loan fees; Acting as a life settlement broker or intermediary while having an interest in that policy; Receiving any compensation for acting as a life settlement broker or intermediary without being properly licensed; 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; Paying finder's fees or any other compensation to any owner's physician, attorney, accountant, insurance producer or consultant, or other person acting in these capacities; Paying life settlement broker's fees before they have been fully disclosed; and Paying life settlement payments in installments.

Commission Sharing

Persons are prohibited from receiving any compensation for acting as a life settlement broker, or sharing any compensation with a person who is not licensed as such in this state. No finder's fees or referral fees may be paid, directly or indirectly, to any owner's physician, attorney, accountant, insurance producer, or insurance consultant.

protected health information (PHI)

Under the Privacy Rule for HIPAA, protected information includes all "individually identifiable health information" held or transmitted by a covered entity or its business associate, in any form or media, whether electronic, paper or oral.

Life Settlement Broker

a person who, for compensation, solicits, negotiates, or offers to negotiate a life settlement contract. Life settlement brokers represent only the policyowners, and have a fiduciary duty to the owners to act according to their instructions and in their best interest.

HIPAA

Health Insurance Portability and Accountability Act: protects individual's health information and sets standards for privacy and security of that information