Life & Viatical Settlements

Table of Contents

 

 

Table of Contents

1

 

 

Chapter 1 Understanding the Product

7

 

How do Viatical Settlements Work?

8

 

  Purchasing Partial Policies

8

 

  The Difference between a Broker & Provider

8

 

  Viatical Participant Confidentiality

9

 

  Paying the Viator

10

 

  Buyers Remorse

10

 

  When Death Occurs Soon After Selling a Life Contract

10

 

  Following Payment for the Life Policy

10

 

  Checking Health Status through Physicians

11

 

  Extra Policy Benefits

11

 

  Other Available Options

12

 

  What Every Policyowner should be Aware of

12

 

Viatical History

13

 

  Medical Underwriting

15

 

  Insurance Underwriting

15

 

  Policy Ownership Transfer

17

 

  Policy Premium Payments

18

 

  Outstanding Policy Loans

21

 

  Additional Investment Fees

22

 

  Escrow Trust Accounts

23

 

Viatical & Life Settlement Disclosures

24

 

 

 

Chapter 2 Life & Viatical Investing

27

 

  Viatical Settlement Participants

28

 

The Viatical Contract

29

 

Contract Standardization

31

 

Viatical Settlement Terminology

32

 

  Securities

40

 

  It is Important to Remember

43

 

Accelerated Benefits

43

 

Application Clean Sheeting

43

 

Wet Ink Policies

44

 

Contestability Period

45

 

  Insured’s Life Expectancy

45

 

Cases of Fraud

46

 

  Repercussions for the Industry

47

 

  Investor Risks

47

 

Understand the Product

50

 

  Maturity Risk

50

 

    Clinical, Statistical, Multi-Disciplinary

52

 

  Minimizing Investment Risk Through Knowledge

53

 

A New Issue:  Viator Fraud

54

 

  Viator Tracking

56

 

Life Insurance Contracts

56

 

  Basic Concepts

57

 

  Insurance Companies Measure Risk

57

 

Types of Life Insurance

59

 

What Will the Insurance Cost?

59

 

Term Insurance

60

 

Permanent Insurance

65

 

  Universal Life Insurance Policies

69

 

  Universal Life Policies Compared to Traditional Plans

70

 

Premiums

73

 

Policy Options

74

 

  Nonforfeiture Options

74

 

  Dividend Options

75

 

  Settlement Options

76

 

State Required Provisions

78

 

  Incontestability

78

 

  Misstatements in the Application

79

 

  Deferment Claude

79

 

  Nonforfeiture

80

 

  Loan Values

80

 

  Grace Periods & Reinstatement

81

 

Allowed Policy Provisions

81

 

  Suicide, Aviation, War

82

 

General Provisions

82

 

  Deduction of Indebtedness & Premium Refund

83

 

  Change of Beneficiary

83

 

  Assignment

84

 

Beneficiary Designations

84

 

Policy Payments

86

 

  Cash Values

87

 

  Dividends

87

 

  Proceeds

88

 

  Special Clauses

88

 

 

 

Chapter 3 Life & Viatical Benefits

91

 

About the Viatical Industry

92

 

Tax Issues

93

 

  Viators with Less than Two Year Life Expectancy

94

 

  Two to Five Year Life Expectancy Estimate

95

 

Life & Viatical Settlements

96

 

Client Qualifications

97

 

  Requirement #1, #2, #3

98

 

  Illness Creates a Need for Cash

98

 

 

 

Chapter 4 NAIC Viatical Model Act

100

 

Definitions

101

 

License and Bond Requirements

103

 

License Revocation & Denial

106

 

Viatical Settlement Contracts & Disclosure Statements

107

 

Reporting Requirements & Privacy

108

 

Examination or Investigations

109

 

  Confidentiality of Examination Information

112

 

  Conflict of Interest

113

 

  Immunity from Liability

113

 

Disclosure to Viator

113

 

Disclosure to Insurer

120

 

General Rules

120

 

Prohibited Practices

123

 

Prohibited Practices & Conflicts of Interest

125

 

Advertising for Viatical Settlements & Purchase Agreements

126

 

Fraud Prevention & Control

130

 

  Fraud Warnings

130

 

  Immunity from Liability

131

 

Confidentiality

132

 

Viatical Settlement Antifraud Initiatives

132

 

Injunctions;  Civil Remedies;  Cease-and-Desist

133

 

Unfair Trade Practices

134

 

Authority to Promulgate Regulations

135

 

Chapter 5 National Conference of Insurance Legislators

                 (NCOIL)

136

 

NCOIL Note

136

 

Definitions

137

 

Licensing Requirements

146

 

License Suspension, Revocation or Refusal to Renew

149

 

Contract Requirements

151

 

Reporting Requirements and Privacy

151

 

Examination

153

 

  Conduct of Examinations

154

 

  Examination Reports

155

 

  Confidentiality of Examination Information

156

 

  Conflict of Interest

156

 

  Immunity from Liability

157

 

  Investigative Authority of the Commissioner

157

 

  Cost of Examinations

157

 

Advertising

158

 

Disclosures to Owners

158

 

Disclosure to Insurers

161

 

General Rules

163

 

Authority to Promulgate Regulations;  Conflict of Laws

166

 

  Conflict of Laws

166

 

Prohibited Practices

167

 

Fraud Prevention & Control

169

 

  Fraud Warning Required

169

 

  Mandatory Reporting of Fraudulent Life Settlement Acts

170

 

  Immunity From Liability

170

 

  Confidentiality

171

 

  Other Law Enforcement or Regulatory Authority

171

 

  Life Settlement Antifraud Initiatives

172

 

Injunctions;  Civil Remedies;  Cease and Desist

173

 

Penalties

174

 

Unfair Trade Practices

174

 

Effective Date

174

 

 

Chapter 6 Stranger-Oriented Life Insurance

176

 

Defining STOLI

176

 

Actuarial Life Expectancies

180

 

State Legislation

180

 

  Life Settlement Participants

182

 

    STOLI / four basic steps

185

 

  Policy Transfers & Insurable Interest

187

 

Recent Regulatory Changes

191

 

A Speculative Contract

194

 

 

 

Chapter 7 Viatical Ethics

198

 

    Consider the Following Questions

198

 

    Example

202

 

Ethical Goals

203

 

    Obligation

206

 

    Accountability

206

 

Promoting Ethical Activity

206

 

Following the Law

207

 

Ethics in the Workplace

208

 

  Consider the definition of ethics

208

 

  It is Always Wrong

208

 

The Same by Any Other Name

209

 

Our Past Continues into our Future

211

 

Companies Set Guidelines

216

 

    Example

223

 

Promoting Ethical Behavior

223

 

Ethical Decisions: Four Basic Issues

223

 

Egoism

226

 

  Is it possible to teach ethical behavior to others?

228

 

  What is the scope of ethics?

228

 

  What does it take to be a moral person?

229

 

Quality of Work

230

 

  What do I want my legacy to be?

230

 

Ethics Start at the Top

231

 

  What are our responsibilities to other moral persons?

231

 

Objectivist Ethics

233

 

    Example

233

 

  Holding our Ethic Code

234

 

Mores

237

 

  “Fast Buck” Items

240

 

  The Professional

240

 

  Due Diligence

240

 

 

 

 

United Insurance Educators, Inc.

8213 – 352nd Street East

Eatonville, Washington 98328-8638

 

Telephone: (253) 846-1155

FAX: (253) 846-7536

 

Email: mail@uiece.com