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.

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