Life & Viatical Settlements, 3^rd Edition

Table of Contents

Chapter 1 Understanding the Product		1
	Viatical Funding Firms	1
	How do Viatical Settlements Work?	2
	Purchasing Partial Policies	2
	The Difference between a Broker & Provider	2
	Viatical Participant Confidentiality	2
	Paying the Viator	3
	Buyer’s Remorse	3
	When Death Occurs Soon After Selling a Life Contract	3
	Following Payment for the Life Policy	3
	Checking Health Status through Physicians	4
	Extra Policy Benefits	4
	Other Available Options	5
	What Every Policy Owner should be Aware of	5
	Viatical History	6
	Viaticum	6
	Medical Underwriting	7
	Insurance Underwriting	7
	Stranger-Originated Life Insurance	9
	Spin-Life	9
	The terms Viatical Settlements & Life Settlements	9
	Policy Ownership Transfer	10
	Policy Premium Payments	10
	Example	11
	Premium determination & several factors	12
	Outstanding Policy Loans	13
	Additional Investment Fees	13
	Escrow Trust Accounts	14
	Viatical & Life Settlement Disclosures 1- 9	15
	Viatical & Life Settlement Disclosures 10	16
	Additional disclosures 1 – 5	16
Chapter 2 Viatical Investing		17
	Viatical Settlement Participants	18
	The Viatical Contract	19
	Basic criteria to be followed 1 – 3	20
	Contract Standardization	20
	Viatical Settlement Terminology	21
	Irrevocable beneficiaries	23
	Who should be involved?	24
	Length of time a life insurance policy must be supported	25
	Rescission fees	25
	Maturity Risk & Cancellation Risks	26
	Securities	27
	Important questions investors should ask themselves	27
	It is Important to Remember	29
	Accelerated Benefits	30
	Application Clean Sheeting	30
	Wet Ink Policies	31
	Contestability Period	31
	Insured’s Life Expectancy	31
	Cases of Fraud	32
	Repercussions for the Industry	33
	Investor Risks	33
	Recommendations for investing in life insurance 1 – 2	33
	Recommendations for investing in life insurance 3 - 9	34
	Understand the Product	35
	Maturity Risk	36
	Clinical, Statistical, Multi-Disciplinary	37
	Minimizing Investment Risk Through Knowledge	37
	A New Issue:  Viator Fraud	39
	Viator Tracking	40
	Life Insurance Contracts	40
	Basic Concepts	41
	Insurance Companies Measure Risk	41
	Types of Life Insurance	42
	What Will the Insurance Cost?	43
	Term Insurance	44
	Reentry renewable level term	46
	Level decreasing term	47
	Permanent Insurance	48
	Example	50
	Universal Life Insurance Policies	51
	Universal Life Policies Compared to Traditional Plans	52
	Premiums	55
	Policy Options	55
	Nonforfeiture Options	55
	Dividend Options	56
	Settlement Options	57
	State Required Provisions	58
	Incontestability	59
	Misstatements in the Application	59
	Deferment Clause	60
	Nonforfeiture	60
	Loan Values	60
	Grace Periods & Reinstatement	61
	Allowed Policy Provisions	62
	Suicide, Aviation, War	62
	General Provisions	62
	Deduction of Indebtedness & Premium Refund	63
	Change of Beneficiary	63
	Assignment	63
	Beneficiary Designations	64
	Policy Payments	66
	Cash Values	66
	Dividends	67
	Proceeds	67
	Special Clauses	68
Chapter 3 Life & Viatical Benefits		70
	Life Insurance Termination	70
	About the Viatical Industry	71
	Tax Issues	72
	Viators with Less than Two Year Life Expectancy	73
	Two to Five Year Life Expectancy Estimate	73
	Life & Viatical Settlements	74
	Client Qualifications	75
	Requirement #1	75
	Requirement #2 & #3	76
	Illness Creates a Need for Cash	76
Chapter 4 NAIC Viatical Model Act		78
	Model Act Table of Contents	78
	Section 1. Short Title	79
	Section 2. Definitions	79
	A. Advertising	79
	B. Business of viatical settlements	79
	C. Chronically ill	79
	D. Commissioner	79
	E. (1) Financing entity	79
	E.   (2) Financing entity does not include	80
	F. Fraudulent viatical settlement act	80
	G. Life insurance producer	81
	H. Person/Policy/Related provider trust/Special purpose entity	82
	I. Policy	82
	J. Related provider trust	82
	K. Special purpose entity	82
	L. Terminally ill	82
	M. Viatical settlement broker	82
	N. (1) Viatical settlement contract means	82
	N. (2) Viatical settlement contract includes:	83
	N.  (3) Viatical settlement contract does not include:	83
	O. Viatical settlement investment agent	84
	P. (1) Viatical settlement provider means	84
	P. (2) Viatical settlement provider does not include	84
	Q.  Viatical settlement purchase agreement	85
	R. (1) Viatical settlement purchaser means	85
	R. (2) Viatical settlement purchaser does not include	85
	S. Viaticated policy	85
	T. (1) Viator	85
	T. (2) Viator does not include:	86
	Section 3. License and Bond Requirements	86
	Section 4. License Revocation & Denial	89
	Section 5. Approval of Viatical Settlement Contracts & Disclosure Statements	90
	Section 6. Reporting Requirements & Privacy	90
	Section 7. Examination or Investigations	91
	A. Authority, Scope, and Scheduling of Examinations	91
	B. Record Retention Requirements	92
	C. Conduct of Examinations	92
	D. Examination Reports	93
	E. Confidentiality of Examination Information	94
	F. Conflict of Interest	96
	G. Cost of Examinations	96
	H. Immunity from Liability	96
	Section 8. Disclosure to Viator 1-7	97
	Disclosure to Viator 8-11	98
	Section 9. Disclosure to Insurer	102
	Section 10. General Rules	102
	Section 11. Prohibited Practices	105
	Section 12. Prohibited Practices & Conflicts of Interest	106
	Section 13. Advertising for Viatical Settlements & Purchase Agreements	107
	Section 14. Fraud Prevention & Control	112
	A. Fraudulent Viatical Settlement Acts	112
	B. Fraud Warning Required	112
	C. Mandatory Reporting of Fraudulent Viatical Settlement Act	112
	D. Immunity from Liability	112
	E. Confidentiality	113
	F. Other Law Enforcement or Regulatory Authority	114
	G. Viatical Settlement Antifraud Initiatives	114
	Section 15. Injunctions; Civil Remedies; Cease-and-Desist	115
	Section 16. Unfair Trade Practices	117
	Section 17. Authority to Promulgate Regulations	117
	Section 18. Severability	118
	Section 19. Effective Date	118
	CHART KEY	118
	CHART	119-123
	History of NAIC Viatical Model Act	124
	Section 1. Short Title	125
	Section 2. Definitions	125
	Section 2D Continued	127
	Section 2E Continued	128
	Section 2K Continued	130
	Section 2 Continued	131
	Section 2M Continued	133
	Section 2N Continued	134
	Section 2R Continued	136
	Section 3. License Requirements	137
	Section 4. License Revocation & Denial	140
	Section 4 Continued	141
	Section 5. Approval of Viatical Settlement Contracts & Disclosure Statements	142
	Section 6. Reporting Requirements & Confidentiality	143
	Section 6B Continued	144
	Section 7. Examination	145
	Section 8. Disclosure	145
	Section 8A Continued	147
	Section 8B Continued	150
	Section 9. General Rules	152
	Section 9A Continued	153
	Section 9C Continued	155
	Section 10. Prohibited Practices	156
	Section 11. Advertising for Viatical Settlements	157
	Section 12. Fraud Prevention & Control	158
	Section 12 Continued	159
	Section 13. Injunctions; Civil Remedies; Cease and Desist	160
	Section 14. Unfair Trade Practices	160
	Section 15. Authority to Promulgate Regulations	161
	Section 15D Continued	162
	Section 17. Effective Date	163
	The Bottom Line	164
Chapter 5 National Conference of Insurance Legislators (NCOIL)		166
	NCOIL Note	166
	Definitions	167
	Stranger-Originated Life Insurance (STOLI)	173
	Licensing Requirements	174
	License Suspension, Revocation or Refusal to Renew	176
	Contract Requirements	177
	Reporting Requirements and Privacy	178
	Examination	179
	Conduct of Examinations	179
	Examination Reports	181
	Confidentiality of Examination Information	181
	Conflict of Interest	181
	Immunity from Liability	182
	Investigative Authority of the Commissioner	182
	Cost of Examinations	182
	Advertising	183
	Disclosures to Owners	183
	Disclosure to Insurers	186
	General Rules	187
	Authority to Promulgate Regulations; Conflict of Laws	190
	Conflict of Laws	190
	Prohibited Practices	190
	Fraud Prevention & Control	192
	Fraud Warning Required	192
	Mandatory Reporting of Fraudulent Life Settlement Acts	192
	Immunity from Liability	192
	Confidentiality	193
	Other Law Enforcement or Regulatory Authority	193
	Life Settlement Antifraud Initiatives	194
	Injunctions; Civil Remedies; Cease and Desist	194
	Penalties	195
	Unfair Trade Practices	196
	Effective Date	196
Chapter 6 Stranger-Oriented Life Insurance & Insurable Interests		197
	Defining STOLI	197
	Establishing an Insurable Interest	199
	Lincoln National Life Insurance Company vs. Inzlicht-Sprei	199
	Estate of Malkins vs Wells Fargo Bank	200
	Growth of Life & Viatical Settlements	201
	Actuarial Life Expectancies	202
	State Legislation	202
	Life Settlement Participants	204
	STOLI / four basic steps	206
	Policy Transfers & Insurable Interest	207
	Connecticut Mutual Life Insurance Company vs. Schafer	208
	Grigsby vs Russell	208
	Warnock vs Davis	209
Chapter 7 Life & Viatical Ethics		210
	Ethic Violations Turn into Law Creation	210
	STOLIs Present the Greatest Danger	211
	Cleaning Sheeting Insurance Applications	212
	Dirty Sheeting	212
	Fraud Committed against Investors	213
	Life Expectancy Fraud	214
	Ethics are Complicated	215
	ICERD	216
	Relevance & Circumstances Affect Ethical Views	217
	Insurance Underwriting Discrimination & Viatical Settlements	218
	Genetic Discrimination During Underwriting	219
	Misidentifying STOLI Policies	220
	Example	222
	Ethical Goals	222
	Obligation	224
	Accountability	224
	Promoting Ethical Activity	225
	Following the Law	226
	Financial Ethics	226
	Defining Ethics for Life & Viatical Settlements	226
	1. Ethics: The Principles of honor and morality.	226
	2. Ethics: accepted rules of conduct.	226
	3. Ethics: the moral principles of an individual.	226
	Some Actions are Always Wrong	227
	The Same by Any Other Name	227
	Our Past Continues into our Future	228
	Virtues	230
	Companies Set Guidelines	232
	Looking for Safety in Life & Viatical Settlements	234
	What Promotes Unethical Insurance Behavior?	238
	Example	238
	Promoting Ethical Behavior	239
	Ethical Decisions: Four Basic Issues	239
	Self Interest in Financial Settlement Transactions	241
	Egoism	241
	Is it possible to teach ethical behavior to others?	242
	What is the scope of ethics in life & viatical settlements?	243
	What does it take to be a moral person?	244
	Quality of Work	244
	Poor Images & Bad Publicity has Impacted Life Settlements	244
	Ethics Start at the Top	245
	All Individuals in Settlement Transactions have a Moral Obligation	245
	Life & Viatical Settlement Representatives Must be Ethical	247
	Example	247
	Maintaining an Ethical Code in a Difficult World	248
	Mores – Seeking Out Industry Professionals	250
	Customs	251
	The Professional	252
	Due Diligence	252
	A Recap of Life & Viatical Settlements	253
	Moral Understanding	255

United Insurance Educators, Inc.

PO Box 1030

Eatonville, Washington 98328

Telephone: (253) 846-1155

FAX: (253) 846-7536

Email: mail@uiece.com