Life Insurance Settlements

Question 1

Life Settlement Contract is between which too parties?

Answer 1

A life settlement contract is an agreement between a life settlement provider and a life insurance policyowner in which the owner assigns, transfers, or sells any part of the policy’s death benefit, ownership, or beneficial interest.

The amount paid is less than the policy’s expected death benefit.

A life settlement contract does not include:

• NOT an assignment of a policy as collateral for a loan;
• NOT a policy loan or the payment of surrender benefits;
• NOT an exchange of life insurance policies in a 1035 transaction;
• NOT an agreement to take an assignment, purchase, or otherwise receive the death benefit or ownership interest in a policy on an insured or joint insureds;
• NOT an assignment or transfer of a settled policy to a life settlement provider, accredited investor, or qualified institutional buyer, financing entity, special purpose entity, or related provider trust;
• NOT an agreement in which the parties are related to the insured by blood or law or have an insurable interest in the insured;
• NOT an agreement between an employee and employer, when the employer purchases life insurance on the employee’s life;
• NOT a business succession planning arrangement between shareholders, partners, or members and a business entity; or a corporate or pension benefit plan.

Question 2

A life settlement broker _________ and __________ life settlements between a policyowner and a life settlement provider.

A broker represents the ______________ and receives a fee or commission for his or her services.

The following persons are NOT considered life settlement brokers:

• life settlement providers
• attorneys
• certified public accountants
• financial planners

Answer 2

A life settlement broker solicits and negotiates life settlements between a policyowner and a life settlement provider.

A broker represents the policyowner and receives a fee or commission for his or her services.

The following persons are NOT considered life settlement brokers:

• life settlement providers
• attorneys
• certified public accountants
• financial planners

Question 3

Insurers may ask applicants whether they intend to pay premiums with help from a ________ that will use the policy as ___________ .

An insurer may include a notice on an application that advises the policyowner that if policy ownership later changes to satisfy the loan, the following may occur:

1. The change of ownership may lead to a person unknown to owner owning an _____________________________ .
2. A change of ownership may limit the owner’s ability to ____________ ___________ in the future on the insured because there is a limit to how much coverage insurers will issue on one life.
3. If owner wishes to obtain more insurance coverage the insured’s ______ issue age, a change in _______ status, and/or other factors may reduce the ability to obtain coverage and/or may result in significantly ______ premiums.
4. The owner should consult a professional advisor, since a change in ownership or in satisfaction of the loan may result in ____ consequences to the owner.

Answer 3

Insurers may ask applicants whether they intend to pay premiums with financing help from a lender that will use the policy as collateral.

An insurer may include a notice on an application that advises the policyowner that if he or she enters into a loan arrangement where the policy is used as collateral, and policy ownership later changes to satisfy the loan, the following may occur:

1. The change of ownership may lead to a person unknown to owner owning an interest in the insured’s life.
2. A change of ownership may limit the owner’s ability to purchase insurance in the future on the insured because there is a limit to how much coverage insurers will issue on one life.
3. If ownership changes, and the owner wishes to obtain more insurance coverage on the insured in the future, the insured’s higher issue age, a change in health status, and/or other factors may reduce the ability to obtain coverage and/or may result in significantly higher premiums.
4. The owner should consult a professional advisor, since a change in ownership or in satisfaction of the loan may result in tax consequences to the owner.

Question 4

6 requirements for a Broker License.

The Superintendent will issue a license if the applicant

1. is at least ____ years old;
2. completes a ________ _________ program;
3. passes a ___________ _________;
4. submits a set of ___________ , if required;
5. is _____________ and ___________; and
6. has not committed an act that is grounds for license revocation or suspension.

A business entity’s life settlement broker license expires on _______ of ____-numbered years.

An individual’s life settlement broker license is valid for ___ years unless it is revoked or suspended.

To continue a license, a life settlement broker must:

• renew the license by the broker’s ______ in odd- or even-numbered years, depending on the year the broker was born;
• submit a renewal application ____ days before the license expires; and
• pay the renewal fee.

Answer 4

It is unlawful for a person or entity to act as a life settlement broker without a license.

To receive a life settlement broker license, a person must submit an application and pay the required fee. The Superintendent will issue a license if the applicant

1. is at least 18 years old;
2. completes a prelicensing education program;
3. passes a written examination;
4. submits a set of fingerprints, if required;
5. is competent and trustworthy; and
6. has not committed an act that is grounds for license revocation or suspension.

A business entity applying for a broker license must designate a person named in the application to be responsible for the business’s compliance with the law.

A business entity’s life settlement broker license expires on June 30 of odd-numbered years.

An individual’s life settlement broker license is valid for two years unless it is revoked or suspended.

To continue a license, a life settlement broker must:

• renew the license by the broker’s birthday in odd- or even-numbered years, depending on the year the broker was born;
• submit a renewal application 60 days before the license expires; and
• pay the renewal fee.

Question 5

Life settlement advertisements must be ________, _________, and not __________.

Life settlement providers, intermediaries, and brokers may not:

• advertise, solicit, or promote the purchase of a policy when the primary purpose is to sell a policy so it can be _________
• or use words like _____ , _____ , or similar words when advertising or soliciting life insurance policies.

Answer 5

Life settlement advertisements must be accurate, truthful, and not misleading.

Life settlement providers, intermediaries, and brokers may not:

• advertise, solicit, or promote the purchase of a policy when the primary purpose is to sell a policy so it can be settled; or
• use words like free, no cost, or similar words when advertising or soliciting life insurance policies.

Question 6

Privacy requirement of HIPAA?

Answer 6

Health Insurance Portability and Accountability Act (HIPAA) Requirements

Anyone who obtains a settled policy or solicits life settlement contracts must

• comply with HIPAA and New York’s Consumer Privacy Regulation to ensure that nonpublic personal information, including the identity of owners and insureds, is protected; and
• ensure that information about the insured’s or owner’s identity is not unlawfully released.

Question 7

4 instances when the release of Personal and Financial Information is permitted.

Answer 7

During a life settlement transaction, life settlement providers, brokers, and intermediaries may not disclose the identity or financial or medical information of an insured or policyowner to third parties.

However, disclosure is permitted if necessary to:

1. complete the life settlement contract or sale, and the owner and insured have given their written consent; or
2. allow the provider or broker to administer the policy or make contacts to determine the insured’s health status.
3. The privacy requirements also do not apply when information is provided to third parties in response to an investigation or examination by the Superintendent, another governmental officer or agency, or a self-regulating entity established under federal securities law; or
4. when a policy is transferred from one provider to another.

Question 8

Prohibited Practices

It is unlawful for a person to:

1. enter into a life settlement contract that the person knows was obtained in a _____ or ________ manner;
2. engage in a transaction to avoid the disclosure laws pertaining to life settlements;
3. engage in __________ practices or acts in connection with a life settlement;
4. enter into a premium finance loan with an applicant for a new policy or with a policyowner, when the lender will receive proceeds or fees from the policy or owner that are more than the amount required to pay the principal, interest, and fees incurred by the lender;
5. obtain an interest in a policy that has been settled, when the person acted as a broker or intermediary in the transaction, unless such affiliation has been disclosed to the policyowner;
6. pay compensation to a person who acts as a life settlement broker when the person is not _______ .
7. receive compensation for acting as a life settlement broker when the person is not _______ .
8. pay out a ________ fee, finder’s fee, or other compensation to a policyowner’s physician, attorney, accountant, insurance producer, insurance consultant, or other person providing medical, legal, or financial planning services to the owner with respect to a life settlement contract;
9. or _______ a referral fee, finder’s fee, or other compensation;
10. pay compensation to a life settlement broker (except when paid for a specific life settlement contract and the compensation is clearly disclosed to the owner);
11. engage in an act that the Superintendent determines is ______ or _________ ;
12. remove, conceal, or destroy the assets of a life settlement provider, broker, or intermediary from the Superintendent;
13. misrepresent or conceal a life settlement provider’s __________ condition; or
14. file a document with the Superintendent containing ______ information or that conceals information about the life settlement business.

A life settlement provider, broker, intermediary, or owner cannot require an insured to undergo a ___________ examination as a condition for entering into a life settlement.

A life settlement provider may not enter into a life settlement contract in which the proceeds will be paid in ___________ .

Answer 8

It is unlawful for a person to:

1. enter into a life settlement contract that the person knows was obtained in a false or misleading manner;
2. engage in a transaction to avoid the disclosure laws pertaining to life settlements;
3. engage in fraudulent practices or acts in connection with a life settlement;
4. enter into a premium finance loan with an applicant for a new policy or with a policyowner, when the lender will receive proceeds or fees from the policy or owner that are more than the amount required to pay the principal, interest, and fees incurred by the lender;
5. obtain an interest in a policy that has been settled, when the person acted as a broker or intermediary in the transaction, unless such affiliation has been disclosed to the policyowner;
6. pay compensation to a person who acts as a life settlement broker when the person is not licensed;
7. receive compensation for acting as a life settlement broker when the person is not licensed;
8. pay a referral fee, finder’s fee, or other compensation to a policyowner’s physician, attorney, accountant, insurance producer, insurance consultant, or other person providing medical, legal, or financial planning services to the owner with respect to a life settlement contract;
9. accept a referral fee, finder’s fee, or other compensation;
10. pay compensation to a life settlement broker (except when paid for a specific life settlement contract and the compensation is clearly disclosed to the owner);
11. engage in an act that the Superintendent determines is unfair or deceptive;
12. remove, conceal, or destroy the assets of a life settlement provider, broker, or intermediary from the Superintendent;
13. misrepresent or conceal a life settlement provider’s financial condition; or
14. file a document with the Superintendent containing false information or that conceals information about the life settlement business.

A life settlement provider, broker, intermediary, or owner cannot require an insured to undergo a medical examination as a condition for entering into a life settlement.

A life settlement provider may not enter into a life settlement contract in which the proceeds will be paid in installments.

A life settlement provider, broker, or intermediary may not monopolize the life settlement business.

It is also unlawful for life settlement providers, brokers, and intermediaries to enter into an agreement with other providers, brokers, or intermediaries that restricts an owner’s or broker’s ability to seek competitive bids on policies and

• unlawfully restrains or constitutes anti-competitive behavior;
• fixes or limits the value paid to owners;
• contains anti-competitive terms or that significantly lessens competition in the life settlement business; or
• states they will refuse to conduct business with any person in the life settlement business.

A life settlement intermediary may not:

• represent, solicit, negotiate, or act on behalf of an owner, a life settlement provider, or a life settlement broker; or
• act as a life settlement provider or life settlement broker.

Question 9

It is unlawful for anyone to engage in an act or practice that constitutes _________ ________ _______ ________ (STOLI).

STOLI includes:

• transactions where life insurance is purchased using money from a person without an __________ _________ in the insured when the purchase is initiated; or
• agreements to ______ policy ownership or benefits to a third party.

Answer 9

Insurable Interest Provisions

It is unlawful for anyone to engage in an act or practice that constitutes stranger-originated life insurance (STOLI).

Stranger-originated life insurance involves purchasing a life insurance policy for the benefit of a person who does not have an insurable interest in the insured when the policy is issued. In other words, a policy is purchased with the intent of transferring ownership to a third-party investor who will profit from the insured’s death.

STOLI includes:

• transactions where life insurance is purchased using money from a person without an insurable interest in the insured when the purchase is initiated; or
• agreements to transfer policy ownership or benefits to a third party.

Trust-Owned Policies

STOLI also includes using a trust to purchase a life insurance policy to benefit a third party in a manner that violates the insurable interest rules.

Question 10

Key Points

Answer 10

• A life settlement contract is an agreement between a life settlement provider and a life insurance policyowner in which the owner assigns, transfers, or sells any part of the policy’s death benefit, ownership, or beneficial interest.
• A life settlement broker solicits and negotiates life settlements between a policyowner and a life settlement provider.
• A broker represents the policyowner and receives a fee or commission for his or her services.
• The business of life settlements refers to offering to enter into or soliciting, negotiating, procuring, or monitoring life settlement contracts.
• A financing entity is an accredited investor that provides the funds needed to effect a life settlement and has a written agreement with a life settlement provider to finance the acquisition of a life settlement contract.
• Insurers may ask applicants whether they intend to pay premiums with financing help from a lender that will use the policy as collateral. Find out more.
• Insurers may include a notice on applications that advise the policyowner about the consequences of entering into a life settlement.
• Individuals, firms, associations, and corporations may be licensed as life settlement brokers.
• It is unlawful for a person or entity to act as a life settlement broker without a license.
• To receive a life settlement broker license, a person must submit an application, pay a fee, be at least 18 years old, complete a prelicensing education program, pass a written examination, submit a set of fingerprints, be competent and trustworthy, and not have committed an act that is grounds for license revocation or suspension.
• Life settlement advertisements must be accurate, truthful, and not misleading.
• Anyone who solicits life settlement contracts must comply with HIPAA’s and New York’s consumer privacy requirements to protect owners’ and insureds’ nonpublic personal information.
• It is unlawful for a person to engage in fraudulent life settlement contracts.
• It is unlawful for anyone to engage in an act or practice that constitutes stranger-originated life insurance (STOLI).
• Stranger-originated life insurance involves purchasing a life insurance policy for the benefit of a person who does not have an insurable interest in the insured when the policy is issued.
• A trust may not be used to purchase a life insurance policy to benefit a third party that does not have an insurable interest in the insured.