Life & Viatical Settlements

Table of Contents

 

Table of Contents

1

 

 

Chapter 1 Understanding the Product

7

 

  Viatical Funding Firms

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

 

  Buyer’s 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 Policy Owner should be Aware of

12

 

Viatical History

13

 

    Viaticum

13

 

  Medical Underwriting

15

 

  Insurance Underwriting

15

 

    Stranger-Originated Life Insurance

16

 

    Spin-Life

16

 

    The terms Viatical Settlements & Life Settlements

17

 

  Policy Ownership Transfer

17

 

  Policy Premium Payments

18

 

    Example

19

 

    Premium determination & several factors

20

 

  Outstanding Policy Loans

21

 

  Additional Investment Fees

22

 

  Escrow Trust Accounts

23

 

Viatical & Life Settlement Disclosures 1- 7

24

 

Viatical & Life Settlement Disclosures 8 – 10

25

 

    Additional disclosures 1 – 3

25

 

    Additional disclosures 4 – 5

26

Chapter 2 Life & Viatical Investing

27

 

  Viatical Settlement Participants

28

 

The Viatical Contract

29

 

    Basic criteria to be followed 1 – 5

30

 

Contract Standardization

31

 

Viatical Settlement Terminology

32

 

    Irrevocable life insurance contracts

34

 

    Who should be involved?

35

 

  Length of time a life insurance policy must be supported

37

 

    Rescission fees

38

 

    Maturity Risk & Cancellation Risks

39

 

  Securities

40

 

  Important questions investors should ask themselves

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

 

    Recommendations for investing in life insurance 1 – 9

48

 

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?

60

 

Term Insurance

61

 

    Reentry renewable level term

63

 

Permanent Insurance

66

 

    Example

69

 

  Universal Life Insurance Policies

71

 

  Universal Life Policies Compared to Traditional Plans

72

 

Premiums

76

 

Policy Options

76

 

  Nonforfeiture Options

76

 

  Dividend Options

77

 

  Settlement Options

78

 

State Required Provisions

80

 

  Incontestability

81

 

  Misstatements in the Application

82

 

  Deferment Clause

82

 

  Nonforfeiture

83

 

  Loan Values

83

 

  Grace Periods & Reinstatement

84

 

Allowed Policy Provisions

84

 

  Suicide, Aviation, War

85

 

General Provisions

86

 

  Deduction of Indebtedness & Premium Refund

86

 

  Change of Beneficiary

86

 

  Assignment

87

 

Beneficiary Designations

87

 

Policy Payments

90

 

  Cash Values

90

 

  Dividends

91

 

  Proceeds

91

 

  Special Clauses

92

Chapter 3 Viatical Benefits

95

 

About the Viatical Industry

96

 

Tax Issues

97

 

  Viators with Less than Two Year Life Expectancy

98

 

  Two to Five Year Life Expectancy Estimate

99

 

Life & Viatical Settlements

100

 

Client Qualifications

102

 

  Requirement #1, #2, #3

102

 

  Illness Creates a Need for Cash

103

Chapter 4 NAIC Viatical Model Act

104

 

Section 1. Short Title

105

 

Section 2. Definitions

105

 

Section 3. License and Bond Requirements

115

 

Section 4. License Revocation & Denial

118

 

Section 5. Approval of Viatical Settlement Contracts & Disclosure Statements

120

 

Section 6. Reporting Requirements & Privacy

120

 

Section 7. Examination or Investigations

121

 

  B. Record Retention Requirements

122

 

  C. Conduct of Examinations

123

 

  D. Examination Reports

124

 

  E. Confidentiality of Examination Information

125

 

  F. Conflict of Interest

127

 

  G. Cost of Examinations

128

 

  H. Immunity from Liability

128

 

Section 8. Disclosure to Viator 1-4

129

 

      Disclosure to Viator 5-10

130

 

Section 9. Disclosure to Insurer

136

 

Section 10. General Rules

136

 

Section 11. Prohibited Practices

140

 

Section 12. Prohibited Practices & Conflicts of Interest

142

 

Section 13. Advertising for Viatical Settlements & Purchase Agreements

143

 

Section 14. Fraud Prevention & Control

149

 

  Fraud Warning Required

149

 

  Immunity from Liability

150

 

Confidentiality

151

 

Viatical Settlement Antifraud Initiatives

152

 

Section 15. Injunctions;  Civil Remedies;  Cease-and-Desist

154

 

Section 16. Unfair Trade Practices

156

 

Section 17. Authority to Promulgate Regulations

156

 

Section 18. Severability

157

 

Section 19. Effective Date

157

 

Chart

159

Chapter 5 National Conference of Insurance Legislators

                 (NCOIL)

164

 

NCOIL Note

164

 

Definitions

165

 

     Stranger-Originated Life Insurance (STOLI)

174

 

Licensing Requirements

174

 

License Suspension, Revocation or Refusal to Renew

178

 

Contract Requirements

179

 

Reporting Requirements and Privacy

179

 

Examination

181

 

  Conduct of Examinations

182

 

  Examination Reports

183

 

  Confidentiality of Examination Information

184

 

  Conflict of Interest

184

 

  Immunity from Liability

185

 

  Investigative Authority of the Commissioner

185

 

  Cost of Examinations

186

 

Advertising

186

 

Disclosures to Owners

186

 

Disclosure to Insurers

190

 

General Rules

191

 

Authority to Promulgate Regulations; Conflict of Laws

195

 

  Conflict of Laws

195

 

Prohibited Practices

196

 

Fraud Prevention & Control

197

 

  Fraud Warning Required

198

 

  Mandatory Reporting of Fraudulent Life Settlement Acts

198

 

  Immunity from Liability

198

 

  Confidentiality

199

 

  Other Law Enforcement or Regulatory Authority

200

 

  Life Settlement Antifraud Initiatives

200

 

Injunctions; Civil Remedies; Cease and Desist

201

 

Penalties

202

 

Unfair Trade Practices

203

 

Effective Date

203

Chapter 6 Stranger-Oriented Life Insurance & Insurable

                 Interests

204

 

Defining STOLI

204

 

Establishing an Insurable Interest

204

 

     Primary characteristic

206

 

     Kramer v. Phoenix Life Insurance Company

210

 

     Sun Life Assurance Company of Canada v. Berck

211

 

Actuarial Life Expectancies

214

 

State Legislation

214

 

  Life Settlement Participants

216

 

    STOLI / four basic steps

219

 

  Policy Transfers & Insurable Interest

221

 

Recent Regulatory Changes

225

 

     Warnock v. Davis

227

 

A Speculative Contract

228

Chapter 7 Life & Viatical Ethics

231

 

    Consider the Following Questions

231

 

    Example

235

 

Ethical Goals

236

 

    Obligation

239

 

    Accountability

239

 

Promoting Ethical Activity

239

 

Following the Law

240

 

Ethics in the Workplace

241

 

  Consider the definition of ethics

241

 

  It is Always Wrong

242

 

The Same by Any Other Name

242

 

Our Past Continues into our Future

244

 

     Virtues

246

 

Companies Set Guidelines

249

 

    Example

256

 

Promoting Ethical Behavior

256

 

    Ethical Decisions: Four Basic Issues

256

 

Egoism

260

 

  Is it possible to teach ethical behavior to others?

261

 

  What is the scope of ethics?

261

 

  What does it take to be a moral person?

262

 

Quality of Work

263

 

  What do I want my legacy to be?

263

 

Ethics Start at the Top

264

 

  What are our responsibilities to other moral persons?

264

 

Objectivist Ethics

266

 

    Example

266

 

  Holding our Ethic Code

267

 

Mores

270

 

  “Fast Buck” Items

273

 

  The Professional

273

 

  Due Diligence

274

 

 

 

 

 

United Insurance Educators, Inc.

8213 – 352nd Street East

Eatonville, Washington 98328-8638

 

Telephone: (253) 846-1155

FAX: (253) 846-7536

 

Website: www.uiece.com

 

Email: mail@uiece.com